cr explanation of terms 2010 - internal revenue service2010 corporation returns—explanation of...

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Section 5 Explanation of Terms

his section defines the terms used in the tables, including adjustments made in preparing the statistics and limitations in the data. Explana-

tions are designed to aid the user with interpreting the report’s statistical content and should not be construed as interpretations of the Internal Revenue Code or policies of the Internal Revenue Service. Code sections cited are those in effect for the Tax Years covered in this report. The Tax Year refers to the calendar year, unless otherwise stated. The line references given for the terms correspond to Form 1120, U.S. Corporation Income Tax Return, unless otherwise indicated. In most tables, items taken from other forms (1120-L, 1120-F, etc.) and attached schedules conform to Form 1120 format. Although many standardizing adjustments were made, the data presented are unaudited as reported by taxpayers and are therefore, subject to taxpayer errors and misinterpretations, as well as statistical variability and any errors that may have arisen during processing (see “Data Limitations and Measures of Variability,” Section 3). Definitions marked with the symbol Δ have been revised for 2010 to reflect changes in the law.

Accounting Periods In some tables, the data were classified according

to the ending dates of the accounting periods covered by the corporations’ returns. Returns were generally filed covering an annual accounting period; most larger corporations filed returns for accounting periods ending in December (a calendar year period). Some corporations filed “part-year returns,” which have a shorter accounting period (less than 1-year). Corporations filed part-year returns because of business organizations or reorganizations, mergers, liquidations, or changes to accounting periods. The statistics include income and tax data from part-year returns, but not balance sheet data (see “Balance Sheets.”).

Figure D in Section 1 shows the number of returns filed for each accounting period covered in this report. For a discussion of this classification, see “Time Period Employed” in Section 1, Introduction.

Accounts Payable [Page 5, Schedule L, Line 16(d)]

This balance sheet account consists of relatively short-term liabilities arising from the conduct of trade or business and not secured by promissory notes.

Additional Section 263A (Inventory) Costs [Page 2, Schedule A, Line 4]

This component of cost of goods sold includes certain inventory costs capitalized by taxpayers using a simplified method of accounting under the uniform capitalization rules of Code section 263A. However, the statistics found here do not follow the uniform capitalization rules with respect to several deduction items. These rules require certain accrued expenses, such as depreciation, to be capitalized. These accrued expenses are included as current deductions whenever they could be identified (See “Cost of Goods Sold.”).

Additional Paid-In Capital [Page 5, Schedule L, Line 23(d)]

This corporate balance sheet item consists of additions to capital from sources other than earnings. These sources include receipts from the sale of capital stock in excess of stated value, stock redemp-tions or conversions, and similar transactions. The amounts shown are after any negative amounts were deducted.

Adjustments to Shareholders’ Equity [Page 5, Schedule L, Line 26(d)]

See “Retained Earnings, Unappropriated.”

Advertising [, Line 22]

Code section 263(b) allowed advertising expenses as a deduction if they were ordinary, necessary, and bore a reasonable relationship to the corporation’s trade or business. Under Code section 263A, these expenses include advertising identified as part of the cost of goods sold or capitalized, and advertising reported separately as a business deduction. Also included are combined advertising expenses, such as advertising and promotion, and advertising and publicity. Excluded from the data were the costs incurred by publishers, broadcasters, and similar businesses in preparing advertisements for others. These were generally treated as part of the cost of goods sold.

Alcohol and Cellulosic Biofuel Fuels Credit [Form 6478]

A credit was allowed for alcohol (other than that produced from petroleum, natural gas, coal, or peat,

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or with a proof less than 150) used as a fuel. The alcohol fuel credit is the sum of the alcohol mixture credit, alcohol credit, and small ethanol producer credit. The American Jobs Creation Act of 2004 requires that the alternative minimum tax rules be applied to the credit so Form 6478 is no longer filed with Form 3800, General Business Credit. Form 6478 now accommodates the passive activity rules and carryback of any unused credit allowed that previous-ly would have been reported on Form 3800. Also, this means that any credit carried forward from Tax Years beginning before 2005, cannot be shown on Form 6478. Such “carry forwards” must be shown on Form 3800.

Allowance for Bad Debts [Page 5, Schedule L, Line 2b(c)]

This balance sheet account was the allowance or reserve set aside to cover uncollectable or doubtful notes, accounts, and loans usually shown on Form 1120 as an adjustment to notes and accounts receivable. A few corporations, however, reported only net receivables and thus did not show their allowance for bad debts. Many banks and savings and loan associations included reserves for uncol-lectable mortgages and real estate loans in the allowance for bad debts. These amounts were transferred to this item if they were identified on supporting schedules during statistical processing.

The allowance for bad debts was a book account not necessarily related to the deduction for bad debts allowed for tax purposes (see “Bad Debts”).

Alternative Minimum Tax [Form 4626, Line 14]

The alternative minimum tax (AMT) was designed to ensure that a minimum amount of income tax is paid, regardless of the legitimate use of exclusions, deductions, and credits. In effect, the AMT provides a second tax system by curtailing or eliminating many of the means of reducing taxes allowed in the regular tax system, and taxes the resulting “alternative” taxable income at a reduced rate.

A small corporation was not subject to the AMT. Generally, for AMT purposes, a corporation is considered small if it had annual gross receipts of $7.5 million or less for 3 years prior to the 2010 Tax Year. New corporations were also exempt from the AMT.

Table 23 shows the basic computation of the AMT. This computation involves recomputing taxable income from the regular tax by adding or subtracting items allowable in both systems, but in different Tax Years or under different rules (“adjustment items”),

adding back deductions not allowed under the minimum tax (“tax preference items”), and adding or subtracting items from the corporation’s books that had not been accounted for elsewhere (the “adjusted current earnings” computation). A net operating loss deduction, computed using the AMT rules for what constitutes a loss, was allowed. However, it was limited to 90 percent of the alternative minimum taxable income (AMTI). The excess of AMTI over a $40,000 exemption was taxed at a flat rate of 20 percent. The $40,000 exemption was phased out at higher income levels, while corporations with AMTI of $310,000 or more were allowed no exemption. The only credit allowed against the AMT was the credit for foreign taxes, recomputed using the rules for compu-ting AMTI; in most cases, it could not offset more than 90 percent of AMT. The result was the “tentative minimum tax.” The excess of this tentative amount over the regular income tax was the legally defined alternative minimum tax paid in addition to the regular tax.

Most of the following adjustment and preference items could be either additions or subtractions in computing alternative minimum taxable income. The few exceptions are noted.

(1) Depreciation of property placed in service after 1986. This was the difference between the accelerated depreciation allowed under the regular tax rules and the slower deprecia-tion allowed under the AMT. Generally, the adjustment increased AMTI in the early years of a property’s life, and decreased it in later years. Certain types of property were exempt from refiguring depreciation for AMT purposes.

(2) Amortization of certified pollution control facilities. This was the difference between the rapid amortization of pollution control fa-cilities allowed under the regular tax, and the deduction under the depreciation system used for the AMT.

(3) Amortization of mining exploration and development costs. This was the difference between the regular tax deduction allowed for these expenses and by AMT rules, which required expenses to be capitalized and amortized over 10 years.

(4) Amortization of circulation expenses. This applies to personal holding companies only and was the difference between the regular tax deduction, which allowed these ex-penses, and the AMT requirement that they be capitalized and deducted ratably over a 3-years period.


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(5) Adjusted gain or loss. Because many of the differences between the regular tax and the AMT affect the calculation of property’s basis for determining gain or loss from its sale or exchange, gain or loss had to be recomputed for AMT purposes. This item is the difference (positive or negative) between the two, gains or losses.

(6) Long-term contracts. Long-term contracts, except some home construction contracts, were required to use the percentage-of-completion method to determine current in-come for the AMT. This item was the differ-ence between the current year’s income from the contract under this method, and the me-thods allowed for the regular tax.

(7) Merchant marine capital construction funds. For the regular tax, some maritime companies were allowed to deduct profits deposited in a fund for constructing new ships. Neither the fund nor the interest it earned was taxed until the money was with-drawn. This deferral was not allowed under the AMT and any such deductions or interest had to be included in AMTI.

(8) Section 833(b) deduction. Under this sec-tion of the Internal Revenue Code, certain health insurers were allowed a special de-duction from regular taxable income that was not allowed for AMT purposes. This item was the amount of any deduction taken in the cur-rent year.

(9) Tax shelter farm activities. This applied to personal service corporations only and was the difference between farm gains and losses computed under the regular tax rules and those computed using all the AMT account-ing rules. It applied only to personal service corporations with farming operations that were “tax shelters,” as defined in Code sec

(10) Passive activities. This applied to closely held and personal service corporations only and was the difference between gains and losses from passive activities as reported for regular tax purposes and as recomputed us-ing AMT accounting rules.

(11) Loss limitations. This is the difference be-tween gains and losses computed under the different rules of the regular tax and AMT sys-tems, where the at-risk and partnership limi-tations applied in the regular tax.

(12) Depletion. The depletion deduction under both the regular tax and the AMT was limited

by the net income from the depletable prop-erty if percentage depletion was used. In ad-dition, depletion under the AMT was limited to a taxpayer’s basis in the property. This item is the difference between depletion fig-ured under the regular tax rules and deple-tion limited by AMT net income and the AMT basis limitation.

(13) Tax-exempt interest from private activity bonds. Interest from private activity bonds issued after August 7, 1986, used to finance private activity that was still tax exempt under the special exceptions in the regular tax was subject to the AMT and so was an addition to AMTI.

(14) Intangible drilling costs. Generally, some of the intangible drilling costs for oil, gas, and geothermal wells deductible as current ex-penses for the regular tax, had to be capita-lized and written off over 10 years for the AMT. If the difference between the two sys-tems exceeded 65 percent of the net income from the properties, the excess was included in AMTI.

(15) Other adjustments. This item covered ne-cessary adjustments to allow for changes made to limitation amounts by AMT calcula-tions, an allowance for the possessions tax credit and alcohol fuel credit, and AMT ad-justments from estates, trusts, large partner-ships, or cooperatives.

After all adjustments and preferences had been included in AMTI, a catchall adjustment, called the “Adjusted current earnings (ACE) adjustment after excess” was added to or subtracted from the income base. The ACE adjustment took into account those items for which tax treatment offered tax advantages, but were not otherwise included in the AMT (such as tax-exempt interest). The “excess” (if any) was the corporation’s total increase in AMTI from the prior year ACE adjustment over its total reductions in AMTI from prior ACE adjustments.

Alternative Motor Fuel Vehicle Refueling Property Credit Δ [Form 8911, Page 1, Line 7]

The Alternative Motor Vehicle Refueling Property Credit is known as the credit for all property placed in service during the Tax Year. If the property relates to hydrogen, the maximum credit per location is increased to $200,000. For all other property, the credit percentage is increased to 50 percent and the maximum credit per location is increased to 50,000 ($2,000 for non-depreciable property).


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Each property’s cost must first be reduced by any section 179 expense deduction taken for the proper-ty. The American Recovery and Reinvestment Tax Act of 2009 has temporarily increased the credit for property placed in service during 2009 and 2010.

Alternative Motor Vehicle Credit Δ [Form 8910]

The Alternative Fuel Motor Vehicle Credit was enacted by the Energy Policy Act of 2005 and included separate credits for four distinct categories of vehicles: 1) Qualified Hybrid Vehicles, 2) Qualified Fuel Cell Vehicles, 3) Qualified Alternative Fuel Motor Vehicles (QAFMV), Heavy Hybrids, and 4) Advanced Lean-Burn Technology Vehicles.

To qualify for this credit, the taxpayer should have had an Alternative Motor Vehicle placed in service during the Tax Year, and/or attributable to deprecia-ble property, such as vehicles used for business or investment purposes.

Amortization Amortization is a deduction for the recovery of the

costs of long-lived intangible assets similar to the depreciation deduction to recover the costs of tangible assets. It is also used in the IR Code for recovering the costs of some tangible assets, usually as a tax preference for those assets. Most amortiza-tion is calculated on a straight-line basis over recovery periods specified in the Code. Although amortization is not a line item on the corporation income tax return, for statistical purposes, specific types of amortization were edited from attached schedules (for other costs or other deductions, for example) and included in this item in the tables. Because it is not a separate line item, the statistics for this item may be less reliable than for other deduction items.

Amortization of the following types was included in this heading when identifiable on tax returns:

(1) Section 197 intangibles. Purchased good-will and other “going concern” intangibles, customer-based intangibles, licenses, fran-chises, and most other purchased intangible assets not included elsewhere were amortiz-able over a 15-year life.

(2) Pollution control facilities (section 169). 20 percent of the basis of depreciable prop-erty used to reduce pollution could be written off over 5 years instead of being depreciated.

(3) Bond premiums (section 171). Premiums on bonds acquired before 1988 were amor-tized over the life of the bond. For bonds ac-

quired after 1987, the pro-rata bond premium was an offset to the interest earned and was not included here.

(4) Research and experimental expenditures (section 174). Taxpayers can elect to amort-ize their research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period. If they elect to amortize these costs, the tax-payer should deduct them in equal amounts over 5 years or more.

(5) Lease acquisition costs (section 178). Such costs could be amortized over the term of the lease.

(6) Qualified reforestation expenses (section 194). Taxpayers can elect to amortize up to $10,000 (or $5,000 if married and filing sepa-rately) of reforestation costs either paid or in-curred before October 22, 2004, for qualified timber property over a 7-year period.

(7) Qualified revitalization expenditures (sec-tion 1400I). Certain capital expenditures re-lated to a qualified revitalization building, which is located in an area designated as a renewal community.

(8) Business startup expenditures (section 195). For costs either paid or incurred before October 23, 2004, taxpayers could elect an amortization period of 5 years or more. For costs paid or incurred after October 22, 2004, taxpayers could elect to deduct a limited amount of start-up costs. Costs not deducted currently could be amortized ratably over a 15-year period.

(9) Organizational expenditures of corpora-tions (section 248). As with business start-up expenditures, for costs paid or incurred before October 23, 2004, taxpayers could elect an amortization period of 5 years or more. For costs paid or incurred after Octo-ber 22, 2004, taxpayers could elect to deduct a limited amount of organizational costs. Costs not deducted currently could be amor-tized ratably over a 15-year period.

(10) Optional write-off of certain tax prefe-rences (section 59(e)). Taxpayers could avoid including some tax preference items in the minimum tax by electing to capitalize and amortize rather than deduct expenses. These options included 3-year amortization of circu-lation expenses (Code section 173), 10-year amortization of research and experimental expenditures (Code section 174), 5-year


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amortization of intangible drilling costs (Code section 263) (but see below), and 10-year amortization of mining exploration and devel-opment expenses (Code sections 616 and 617).

Amortization of intangible drilling costs was ex-cluded from this heading when it could be identified. Instead, it was included in “Other deductions.”

Amount Owed at Time of Filing [Page 1, Line 34]

See “Overpayment or Amount Owed.”

Bad Debts [Page 1, Line 15]

Bad debts occurring during the year were allowed as a deduction under Code section 166. For most businesses, the deduction was allowed only for debts written off as uncollectable. Additions to reserves, even as the taxpayer’s normal method of accounting for bad debts, were not deductible. However, “small” banks with total assets of $500,000,000 or less were allowed to deduct additions to bad debt reserves under Code section 585 based on their own expe-rience of bad debt losses.

Balance Sheets [, Schedule L]

Balance sheet data are the amounts reported by the taxpayer (when available) as of the end of the taxpayer’s accounting year. Taxpayers were in-structed to provide data that agreed with their books of account, but were given few other guidelines. Thus, the statistics for balance sheets contain considerably more reporting variability than those for income statement and tax computation items. These were the subject of more detailed instructions and more intense scrutiny during IRS processing. Beginning in Tax Year 2002, corporations with less than $250,000 in total receipts, and less than $250,000 in total assets at the end of the Tax Year, were not required to file Schedule L.

Since balance sheet data were from the taxpayers’ books, they were generally governed by general accounting principles rather than the special rules of tax accounting. Where these rules diverged signifi-cantly, balance sheet statistics could show little relationship to the income statement accounts. Inventories, accumulated depletion, depreciation, amortization, accrued tax, other liability accounts, and other capitalized items were often recorded on different bases for tax and book purposes.

A number of steps were taken during statistical processing to reduce the variability due to taxpayer

reporting practices. Misreported amounts were transferred to their proper accounts; amounts from attached schedules were edited into the Schedule L format; and missing balance sheets were either supplied from reference books (if possible), or statistically imputed based on other data on the return and the company’s characteristics.

Some balance sheets were suppressed (or not imputed) during statistical processing. (These companies appear in the tables in the “zero-assets” category.) With the exception of foreign insurance companies, which are required to report U.S. assets segregated from foreign ones, the balance sheets of foreign corporations were excluded from the data because it is not possible to separate U.S. assets from foreign ones. Final returns of corporations going out of existence were not permitted balance sheets, because they should have either had zero assets (if liquidating) or assets included in some other corpora-tion’s return (if merging). And, balance sheet data were not included from most part-year returns, because the same company’s end-of-year data could have been subject to inclusion from its complete return.

Biodiesel and Renewable Diesel Fuels Credit Δ [Form 8864]

The biodiesel and renewable diesel fuels credit was created to encourage the production and use of biodiesel fuels. The credit consists of the biodiesel credit, renewable diesel credit, biodiesel mixture credit, renewable diesel mixture credit, and small agri-biodiesel producer credit. The Energy Tax Incentive Act of 2005 amended section 40A to add credits for renewable diesel fuel sold after December 31, 2005. The Act also added the small agri-biodiesel producer credit for Tax Years ending after August 8, 2005. The credit amount is $1.00 per gallon if either the biodiesel or the biodiesel mixture fuel is (1) produced, and sold or used after 2008, or (2) meets the definition as an agri-biodiesel fuel or renewable diesel fuel. The small agri-biodiesel credit amount is 10 cents per gallon of agri-biodiesel (up to a 15 million gallon maximum) that is: (a) used by the producer, or sold by the producer for use, in the production of a qualified biodiesel mixture in a trade or business or as fuel in a trade or business, or (b) sold at retail and placed in a vehicle fuel tank by the producer or a person buying from the producer. The tax liability for this credit is computed on Form 8864, Biodiesel and Renewable Diesel Fuel Credits. Instead, it is computed on Form 3800, General Business Credit.


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Branch Profits Tax [Form 1120-F, Page 1, Line 3]

This was an additional tax imposed under Code section 884 on after-income-tax U.S. earnings and profits of a foreign corporation that were not invested in a U.S. trade or business. The tax also applied to certain interest payments from income earned in U.S. operations. The provisions were designed to impose a tax on foreign companies’ branches similar to the withholding tax on dividends and interest imposed on foreign-owned subsidiaries incorporated in the U.S. Like the withholding tax, the rate was set in the law at 30 percent, but that rate was only applicable if the U.S. had no tax treaty setting a different rate (which could be zero) with the companies’ home country.

The branch profits tax was imposed on the “divi-dend equivalent” amount of earnings and profits of a U.S. branch of a foreign corporation that was attribut-able to its income effectively connected (or treated as effectively connected under Code section 897) with a U.S. trade or business. The effectively connected earnings and profits were: (1) reduced to reflect any reinvestment of the branch's earnings in assets in the U.S. trade or business (or reduce liabilities in the U.S. trade or business), and (2) increased to reflect any prior reinvested earnings considered remitted to the home office of the foreign corporation.

Certain earnings and profits attributable to income effectively connected with a U.S. trade or business were exempt from the branch profits tax. These tax exempt earnings included: (1) certain earnings under Code sections 921(d) and 926(B) of a foreign sales corporation; (2) foreign transportation carriers (such as ships and aircraft) exempt from U.S. tax by reciprocal exemption; (3) earnings derived from the sale of any interest in U.S. real property holding corporations; (4) interest income derived by a possession bank from U.S. obligations as described in Code section 882(e); (5) earnings derived by certain insurance companies electing to treat income as effectively connected income; and (6) foreign governments and international organizations exempt under Code section 892.

The branch profits tax is the sum of the tax im-posed on the earnings, profits, and interest payments of the foreign corporation. The branch tax was reported on Form 1120-F, U.S. Income Tax Return of a Foreign Corporation. The tax was included in total income tax in the statistics. It is also shown separate-ly for foreign corporations with U.S. business opera-tions in Tables 10 and 11.

Business Receipts [Page 1, Line 1(c)]

Business receipts are the gross operating receipts of the corporation reduced by the cost of returned goods and allowances. Generally, they represent all of a corporation’s receipts except investment and incidental income. Business receipts may also include sales and excise taxes that were included in the sales price of products; some corporations reported this way, while others reported their receipts after adjustment for these taxes.

Business receipts include rents reported by real estate operators and other corporations for which rent made up a significant portion of income. The latter included manufacturers that rented their products, lessors of docks, warehouses, pipelines, and other public utility facilities, and companies engaged in rental services, such as providing lodging places and automobile or clothing rentals.

For banks and other financial institutions whose principal income was interest, business receipts consisting of fees, commissions, credit card income, and other operating receipts as principal income, was reported under that heading and included in the statistics. Banks’ business receipts also included profit from Federal funds transactions. If the bank reported gross sales and purchases, the amounts were netted during statistical processing. Likewise, security dealers included profit from security trades in business receipts. If the gross amounts were re-ported, costs and sales proceeds were netted during statistical processing. Regulated investment compa-nies and real estate investment trusts did not report business receipts; all of their income was included in the investment income categories in the statistics.

Business receipts for insurance companies con-sisted of premium income. Some small property and casualty insurance companies, however, could elect to be taxed only on investment income and thus would have reported no business receipts. Other, smaller companies were exempt from tax altogether. Property and casualty insurance companies with premium income of $1,200,000 or less could elect (under Code section 831(b)(2)) to be taxed on only investment income. Companies with premiums of $600,000 or less were exempt from tax under Code section 501(c)(15).

For all industries, business receipts excluded gains from the sale of assets. See “Net Gain (or Loss), Noncapital Assets” and “Net Capital Gains.”

Capital Gains Tax (1120-RIC) Δ [Form 1120-RIC, Page 2, Schedule J, Line 2b]

Regulated investment companies (RIC) that did not distribute all capital gains to shareholders were taxed at the regular corporate rates of 35% only on


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the undistributed gain for non-qualified timber gain. If the RIC was in a partnership with a net gain, and also received a distributive share of a qualified timber gain from the partnership for the period before May 2009, then the RIC may be eligible for an alternative tax rate on the portion of taxable income attributable to the qualified timber gain. This tax is a component of “Total Income Tax Before Credits.”

Capital Stock [Page 5, Schedule L, Line 22(d)]

This end-of-year balance sheet equity item in-cludes amounts shown for outstanding shares of both common and preferred stock.

Cash [Page 5, Schedule L, Line 1(d)]

This balance sheet asset item includes the amount of actual money or instruments and claims that were usable and acceptable as money on hand at the end of the taxable year, including certificates of deposit.

Cash and Property Distributions [Page 5, Schedule M-2, Line 5(a) & 5(c)]

Cash distributions are distributions from the earn-ings and profits of the distributing corporation, made in cash, to shareholders outside the consolidation. Property distributions, other than a corporation's own stock, are distributions made to shareholders outside the consolidation. These distributions consist of the actual property of the distributing corporation, other than cash or shares of the distribution corporation's own stock.

Charitable Contributions [Page 1, Line 19]

Contributions or gifts to charitable, religious, edu-cational, and similar organizations were deductible under Code section 170(c). In general, the deduction was limited to 10 percent of taxable income com-puted without regard to:

(1) the deduction for contributions;

(2) special deductions for dividends received and for dividends paid on certain preferred stock of public utilities;

(3) any net operating loss carryback under Code section 172;

(4) any capital loss carryback to the Tax Year under Code section 1212(a)(1); and

(5) the deduction of bond premium on repurchase under Code section 249.

Charitable contributions over the 10 percent limita-tion could be carried forward to the next 5 Tax Years; however, the carryover was not allowed if it increased a net operating loss carryover.

A corporation could receive a larger deduction for contributing scientific property used for the care of the ill, needy or infants, for research to an institution of higher education. These applied to all except personal holding companies and corporations whose businesses were the performance of services, and for contributions of computer technology and equipment to schools (under section 170(e)). Regulated invest-ment companies and real estate investment trusts did not report contributions. Contributions made by S corporations were passed through to the sharehold-ers to be deducted on the shareholders’ returns.

The amount shown in the statistics includes con-tributions identified as part of cost of goods sold or capitalized under section 263A. It also includes contributions reported as a business deduction.

Compensation of Officers [Page 1, Line 12]

Salaries, wages, stock bonuses, bonds, and other forms of compensation were included in this deduc-tion item if they were identified as having been paid to officers for personal services rendered. It did not include qualified deferred compensation, such as contributions to a 401(k) plan or a salary reduction agreement, which were included in the statistics for pensions and profit sharing plans. The item included amounts reported as a part of cost of goods sold or capitalized under section 263A.

The deductible compensation of certain officers of publicly held corporations was limited under Code section 162(m) to $1,000,000 or less. However, the limit did not apply to commissions or other compen-sation based on performance, or if the officer worked under a binding contract in effect on February 17, 1993.

Consolidated Returns Consolidated income tax returns contained com-

bined financial data for two or more corporations. All corporations on the return had to meet the following requirements: (1) a common parent corporation owned at least 80 percent of the voting power of all classes of stock, and at least 80 percent of each class of nonvoting stock (except stock which was limited and preferred as to dividends) of at least one member of the group, and (2) these same proportions of stock of each group member were owned within the group.


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Corporations electing to file consolidated returns in one year had to also file consolidated returns in subsequent years, with certain exceptions. The consolidated filing privilege could be granted to all affiliated domestic corporations connected through stock ownership with a common parent corporation except: (1) regulated investment companies (RICs); (2) real estate investment trusts (REITs) that did not consolidate with qualified REIT subsidiaries; (3) corporations designated tax-exempt under Code section 501; (4) Interest Charge Domestic Interna-tional Sales Corporations (IC-DISCs), and (5) S Corporations.

Under Code section 1504(c), life insurance com-panies could file consolidated returns with other life insurance companies without restriction. Also, a non-life insurance parent could include a life insurance subsidiary subject to certain restrictions (e.g., the insurance company must have been a member of the controlled group for at least 5 years).

A consolidated return filed by the common parent company was treated as a unit and each statistical classification was determined on the basis of the combined data of the affiliated group. Therefore, filing changes to or from a consolidated return basis affected year-to-year comparability of certain statis-tics, including data classified by industry and size of total assets. Data on consolidated returns are shown in Table 19.

Constructive Taxable Income from Related Foreign Corporations Δ

This item was the sum of (1) includable income from controlled foreign corporations (CFC) and (2) foreign dividend gross-up. Includable income was the income of U.S.-owned foreign corporations that was taxable to their U.S. shareholders under Code sections 951-964 (“Subpart F”). Foreign dividend gross-up was an amount equal to the foreign tax deemed paid by the foreign corporation that U.S. shareholders could claim as a foreign tax credit. A CFC was one in which more than 50 percent of the voting stock was controlled by U.S. persons, includ-ing domestic corporations, with ownership of at least 10 percent of the voting stock. Any U.S. shareholder owning 10 percent or more of the stock was required to include a share of the includable income and dividend gross-up in taxable income.

Data from foreign dividend gross-up and includa-ble income from controlled foreign corporations were combined into constructive taxable income from related foreign corporations. These components are presented separately in Table 20. Neither includable income from controlled foreign corporations nor

foreign dividend gross-up was included in the statistics for Total Receipts.

Includable Income [Page 2, Schedule C, Line 14(a)]

Generally, the earnings and profits of a controlled foreign corporation (CFC) were subject to U.S. taxation only when the income was actually distri-buted to U.S. shareholders or repatriated to the United States. The Subpart F provisions of the Code created an exception to this general rule by requiring that some types of foreign income be included in the income of the U.S. shareholders even if not distri-buted. The types of income involved are either passive investment income, income from sources thought especially easy to shift between tax jurisdic-tions, or income from sources contrary to public policy.

Includable income consisted of:

(1) Subpart F income, defined below;

(2) any previously excluded Subpart F income which had been invested in qualified assets in less developed countries, and which was ei-ther withdrawn from those countries or repa-triated to the U.S. shareholders and therefore became taxable;

(3) any previously excluded Subpart F income which had been withdrawn from foreign base company shipping operations;

(4) any increase in Controlled Foreign Corporation earnings due to investment in U.S. property; and

(5) factoring income, or income that arose from the sale or transfer of a receivable.

Subpart F income, defined in Code section 952, included:

(1) income from issuing (or reinsuring) an insur-ance or annuity contract that would otherwise be taxed under Subchapter L of the Internal Revenue Code if that income had been from a domestic insurance company;

(2) “foreign base company income,” which in-cluded several types of income derived from passive investments or from transactions out-side the CFC’s country of incorporation;

(3) income from participation in international boy-cotts not sanctioned by the United States;

(4) illegal bribes, kickbacks, or other payments to a government official; and

(5) income derived from any foreign country dur-ing any period for which a foreign tax credit


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would be denied for taxes paid to those coun-tries, as described in Code section 901(j) (i.e., a government that was not recognized by the United States, with which the United States severed or did not conduct diplomatic rela-tions, or which provided support for interna-tional terrorism).

Foreign Dividend Income Resulting From Foreign Taxes Deemed Paid [Page 2, Schedule C, Line 15(a)]

This item, also called “foreign dividend gross-up,” was constructive taxable income to corporations claiming a foreign tax credit. A U.S. corporation could claim a foreign tax credit for a share of the foreign taxes actually paid by its related foreign corporations, including its controlled foreign corporations. The U.S. corporation's share of the foreign taxes depended on the ratio of the dividends and includable income it received to the total earnings and profits of the related foreign corporation. The foreign taxes were treated as deemed paid by the U.S. corporation. In order to receive credit against U.S. tax, the foreign taxes deemed paid needed to be included in the corporation's worldwide income as well. They were included in income as an increase to foreign divi-dends, called a dividend gross-up. The dividend gross-up was the equivalent amount of the foreign taxes deemed paid by the U.S. corporation.

Controlled Plan and Apportionment Schedule for a Controlled Group [Schedule O]

This schedule was required to be completed by members of a Controlled Group beginning in Tax Year 2006. Controlled Group members were required to report the apportionment of taxable income, income tax, and certain tax benefits between group members, as well as identifying the type of controlled group to which they belong. Group types identified in the instructions are Parent-subsidiary, Brother-sister, and combined groups. Life insurance companies in a group of their own were separately identified, but as part of a life, non-life group, they were identified as one of the other groups. This form was also used for indicating the group member’s consent to the adoption of a new apportionment plan, the amend-ment or termination of an existing plan, whether they already have a plan in effect, and even if they are not planning to adopt an apportionment plan. This schedule was required to be filed by all corporations in each year that they are a member of a controlled group. Controlled group members were entitled to one $50,000, one $25,000, and one $9,925,000 taxable income bracket amount (in that order). Additional income tax was apportioned at a 5% rate,

up to $11,750, if the taxable income of the group was over $100,000, and at a 3% rate, up to $100,000, if the taxable income of the group was over $15 million.

Corporation’s Own Stock Distributions [Page 5, Schedule M-2, Line 5(b)]

Distributions of corporation's own stock were dis-tributions made to shareholders outside the consoli-dation that consisted of shares of the distributing corporation's own stock, in lieu of cash or other property.

Cost of Goods Sold [Page 2, Schedule A, Line 8]

Cost of goods sold represented the costs incurred by the corporation in producing the goods or provid-ing the services that generated the corporation’s business receipts. Included were costs of materials used in manufacturing, costs of goods purchased for resale, direct labor, and a share of overhead ex-penses, such as rent, utilities, supplies, maintenance, and repairs. (Overhead expenses, however, were not included in these statistics as the taxpayers reported them; see “Uniform Capitalization Rules” below.)

The basic cost of goods sold calculation, shown in Schedule A, consisted of adding beginning inventory to the current year purchases, labor, additional inventory costs (section 263a), and other costs and subtracting ending inventory. Each of the individual items included in cost of goods sold is shown separately in Table 2.

Cost of goods sold was imputed for those compa-nies engaged in manufacturing or trade activities that reported gross receipts, but not the cost of goods sold. This was done by using the attachments for "Other Deductions." For other nonfinance industries, a cost was imputed only for companies that reported gross receipts and included inventories on the balance sheet.

Generally, returns of corporations in the finance sector were not expected to have cost of goods sold unless they were consolidated returns including nonfinance subsidiaries. Security dealers sometimes reported the cost of securities traded on their own accounts as cost of goods sold (and reported the gross

sales proceeds as business receipts). Such amounts were netted during statistical processing, with the net gain reported as receipts and cost of goods made zero. The same handling was given to bank returns reporting gross receipts and costs from Federal funds transactions.

Insurance companies were made to conform to Form 1120 format using premium income as gross business receipts and showing benefits paid as cost


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of goods sold. For most life insurance companies, cost of goods sold was equal to death benefits. For other insurance companies, it was equal to losses incurred. These items are shown separately in Table 26.

Uniform Capitalization Rules A taxpayer reporting of cost of goods sold was

governed by the “uniform capitalization rules” of Code section 263A. Most companies producing goods for sale were required to capitalize inventory costs under the uniform capitalization rules. Corporations subject to the rules were required to capitalize direct costs and an allocable portion of most indirect costs that related to the goods produced or acquired for resale. Some of the indirect costs that were required to be allocated to capital accounts were administration expenses, taxes, depreciation, insurance costs, compensation of officers, and contributions to pension, stock bonus, profit sharing, and deferred compensation plans. Special rules were provided for the capitalization of interest expense paid or incurred in the course of production. The rules did not apply to personal property acquired for resale for corporations with annual average gross receipts of $10,000,000 or less. Special rules were provided for farmers and for timber property.

For statistical purposes, many components of cost of goods sold were moved to the equivalent deduc-tion item. For this reason, these appear in the tables as current deductions rather than components of cost of goods sold. Expenses for advertising, amortization, bad debts, compensation of officers, and contribu-tions to charitable organizations, employee benefit programs, and pension plans were transferred to their respective deduction categories when identified on the attachments for cost of goods sold. Also transferred were depletion, depreciation, interest, rent of buildings or real estate, and taxes. Intangible drilling costs were removed from cost of goods sold and included in other deductions.

In this report, therefore, cost of goods sold ap-pears smaller, and many deduction accounts larger, than reported by taxpayers. However, those listed above were the only accounts affected. Inventories were not adjusted; net income or deficit and taxable income were not affected.

Cost of Labor [Page 2, Schedule A, Line 3]

This component of cost of goods sold included the portions of the company’s payroll representing direct labor costs, and some indirect costs allocated to inventory under the uniform capitalization rules. Some labor costs were reported in other accounts, such as Other Costs. (See “Cost of Goods Sold.”)

Cost of Treasury Stock [Page 5, Schedule L, Line 27(d)]

This item was the total value of issued common or preferred stock that had been reacquired and was held at the end of the accounting year by issuing corporations. The stock, which was available for resale or cancellation, may have been purchased by the corporation or acquired through donation or as settlement of a debt. Treasury stock was a part of capital stock outstanding; it did not include unissued capital stock.

Credit by Reciprocal [Form 1120-PC, Page 1, Line 14(h)]

See “Reciprocal Tax.”

Credit for Contributions to Selected Community Development Corporations [Form 8847]

A corporation making qualified cash contributions (including loans or investments) to a community development corporation selected by the Secretary of Housing and Urban Development (HUD) could take a credit against tax. The corporation may claim as a credit 5 percent of the amount contributed for each Tax Year during a 10-year credit period beginning with the Tax Year in which the contribution is made as subject to the limitations of the “General Business Credit” (described under that heading in this section). The components of the general business credit are shown separately in Table 21.

Credit for Employer-Provided Child Care Facilities and Services [Form 8882]

The purpose of this credit is to encourage more businesses to provide child care services for their employees. The amount of the credit for a given Tax Year is the sum of 25 percent of the qualified child-care expenditures and 10 percent of the qualified resource and referral expenditures. The maximum amount of credit allowed in any given year is $150,000. The credit is part of and subject to the limitations and carryover rules of the general busi-ness credit. The components of the general business credit are shown separately in Table 21.

Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips [Form 8846]

Food and beverage establishments that paid the employer’s social security and Medicare tax on employee tip income in excess of the minimum wage were allowed to receive a refund of the excess in the


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form of a credit against income tax. This credit was a component of the “General Business Credit” and was subject to the limitations and carryover provisions discussed under that heading. The components of the general business credit are shown separately in Table 21.

Credit for Federal Tax on Fuels [Page 1, Line 32f(2)]

Code section 34 allowed a credit in full or in stated amounts for excise taxes on:

(1) gasoline used on farms for farming purposes (Code section 6420);

(2) gasoline used for non-highway purposes or by local transit systems (Code section 6421); and

(3) fuel not used for taxable purposes (Code sec-tion 6427), such as, on the sale of fuel when tax was imposed under section 4041(a) or (e), and the purchaser used such fuel other than for the use for which it sold, or resold such fuel.

This credit was also used to claim the credit for purchase of qualified diesel-powered highway vehicles.

Credit for Small Businesses Credit for Small Employer Health Insurance Premiums [Form 8941]

The purpose of this credit is to encourage small businesses to offer health coverage to their em-ployees. This form is used to figure the credit for Tax Years beginning after 2009. Small Businesses who paid a total percentage of 35 percent in premiums, employed fewer than 25 full-time employees, and paid less than $50,000 on average in annual wages per full time employee during the Tax Year are eligible to claim this credit. The credit for small employer health insurance premiums was estab-lished due to the Affordable Care Act of 2009 and is claimed as a part of the General Business Credit, Form 3800.

Credit for Small Employer Pension Plan Startup Costs [Form 8881]

The purpose of this credit is to encourage small businesses to establish and maintain retirement savings accounts for their employees. The credit equals 50 percent of the startup costs incurred to create or maintain a new employee retirement plan. The credit is limited to $500 in any Tax Year and may be claimed for qualified costs incurred in each of the three years beginning with the Tax Year in which the

plan becomes effective. The credit is part of and subject to the limitations and carryover rules of the

general business credit. The components of the general business credit are shown separately in Table 21.

Credit for Tax Paid on Undistributed Capital Gains [Page 1, Line 32f(1)]

Regulated investment companies (RIC) and real estate investment trusts (REIT) were required to pay tax on amounts of undistributed net long-term capital gain less net short-term capital loss at the regular corporate tax rate of 35 percent. Stockholder corpo-rations, for their part, were required to include in the computation of their long-term capital gains any such gains designated by the parent as undistributed dividends. The stockholder corporations were then deemed to have paid the tax on the undistributed long-term capital gain dividends and were allowed a credit for the tax they were deemed to have paid.

Credit to 2010 Estimated Tax [Page 1, Line 36a]

This item was the amount of the taxpayer’s 2010 overpayment applied to the firm’s estimated tax for the 2011 Tax Year. See also, "Overpayment or Amount Owed."

Credit to Holders of Tax Credit Bonds [Page 3, Schedule J, line 5e]

Form 8912, Credit to Holders of Tax Credit Bonds, is used to claim credit for the following tax credit bonds: Clean renewable energy bond (CREB); Gulf tax credit bond (GTCB); Midwestern tax credit bond (MTCB); Qualified forestry conservation bond (QFCB); New clean renewable energy bond (NCREB); Qualified energy conservation bond (QECB); Qualified zone academy bond (QZAB); Qualified school construction bond (QSCB), and Build America bond (BAB). Holders of qualified zone academy bonds now also use Form 8912. The Energy Improvement and Extension Act of 2008 added the new clean renewable energy bonds and the qualified energy conservation bonds. The Tax Extenders and Alternative Minimum Tax Relief Act of 2008 added the Midwestern tax credit bonds. The Food, Conservative, and Energy Act of 2008 added the qualified forestry conservative bonds. The American Recovery and Reinvestment Tax Act of 2009 added the qualified school construction bonds and build America bonds.

Death Benefits [Form 1120-L, Page 1, Line 9]

See “Cost of Goods Sold.”


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Deficit See “Net Income (or Deficit)."

Depletable Assets and Accumulated Depletion [Page 5, Schedule L, Lines 11a and b]

Depletable assets represented, in general, the gross end-of-year value of mineral property, oil and gas wells, other natural deposits, standing timber, intangible development and drilling costs capitalized, and leases and leaseholds, each subject to depletion. Accumulated depletion represented the cumulative adjustment to these assets shown on the corpora-tion's books of account.

The value of depletable assets and accumulated depletion may not be closely related to the current year depletion deduction. The depletable assets and accumulated depletion balance sheet accounts reflected book values; the depletion deduction reflected the amount claimed for tax purposes.

Depletion [Page 1, Line 21]

This deduction was allowed for the exhaustion of mines, oil and gas wells, other natural deposits, and timber. The Code provided two methods for compu-ting the deduction: (1) cost depletion, in which a share of the cost of acquiring or developing a property was written off each year; and (2) percen-tage depletion, which involved simply deducting a fixed percentage of the gross income from the property each year. For standing timber, depletion was computed on the basis of cost. In the case of most natural deposits, the depletion was computed either on a cost or percentage basis. For oil and gas wells, however, percentage depletion was allowed only to “independent” producers (producing less than 50,000 barrels of oil or an equivalent amount of gas a day) and then only for the first 1,000 barrels pro-duced each day. All other oil and gas producers were required to use cost depletion.

Generally, for gas and oil wells, the gross income was the actual sales price, or representative market or field price, if the gas or oil were later converted or manufactured prior to sale. For other natural depo-sits, gross income was defined to include income from mining or extraction and certain treatment processes. Percentage rates for each type of natural deposit were listed in Code section 613 and ranged from 5 to 25 percent of gross income. However, percentage depletion generally could not exceed 50 percent of the taxable income from the property computed without the depletion deduction.

The depletion deduction for natural deposits other than oil and gas could also have been limited by provisions designed to recapture previously deducted mine exploration and development costs. These capital expenditures were deductible when incurred, but had to be recaptured if the mine became produc-tive or was sold. One method taxpayers could elect to recapture these deductions was to forego percentage depletion deductions on the mine until recapture was complete.

The statistics for depletion also did not include amounts shown by the corporation as a deduction in computing net gain or loss from sale of depletable assets under sections 631(a) or 1231. Regulated investment companies and real estate investment trusts did not report depletion.

The amounts shown in the statistics included any identifiable depletion reported as part of the cost of goods sold or capitalized under Code section 263A. Amortization of intangible drilling costs was not included in the statistics for depletion, but was included in “Other Deductions.”

Depreciable Assets and Accumulated Depreciation [Page 5, Schedule L, Lines 10a and b]

Depreciable assets from the corporation's end-of-year balance sheet were the book value of tangible property subject to depreciation (such as buildings and equipment with a useful life of one year or more). This item could include fully depreciated assets still in use and partially completed assets for which no deduction was yet allowed if the corporation reported them as depreciable on its balance sheet. The amounts shown as accumulated depreciation represented the portion of the assets that were written off in the current year and all prior years.

In general, depreciable assets were the gross amounts before adjustment for accumulated depreci-ation. Some corporations reported only the net amount of depreciable assets after deducting accumulated depreciation. Certain insurance compa-nies were included among the corporations which reported only a net amount of depreciable assets. Life insurance companies and some property and casualty insurance companies reported their balance sheet information in the format required by State insurance regulations. This format usually provided for the reporting of only net depreciable assets and only the home and branch office buildings and equipment were included. Other real estate holdings of these corporations were reported as “Other Investments.”


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The statistics for depreciable assets excluded depletable and intangible assets, which were re-ported in their respective items, and accumulated amortization.

Generally, the value of depreciable assets and accumulated depreciation were not closely related to the current-year depreciation deduction. The depre-ciable assets and accumulated depreciation balance sheet accounts reflected book values; the deprecia-tion deduction reflected the amount claimed in the current year for tax purposes.

∆Depreciation Depreciation is a method of recovering the cost of

investments in tangible assets that lose value as they are used to produce income. The depreciation deduction allowed under Code sections 167 and 168 approximated this loss in value by prescribing the rates at which various types of assets could be depreciated and the period over which the investment could be recovered. The depreciation rules in effect for property placed in service in 2010 were basically the same as those enacted in 1986; however, the tax depreciation rules were changed many times over the years, and some assets were still in use in 2010 that were originally placed in service under prior year rules. So the depreciation claimed on 2010 returns included in these statistics could have represented amounts computed by several different sets of rules.

In 2010, the basic depreciation system was the “Modified Accelerated Cost Recovery System,” or MACRS, that provided two systems for computing the depreciation deduction. The “General Depreciation System,” or GDS, specified recovery periods of 3, 5, 7, or 10 years for livestock, fruit trees, most machi-nery, equipment, and tangible personal property, and prescribed the 200-percent declining balance method of determining the amount to be written off each year. Public utility property, water transportation equip-ment, and farm buildings were placed in the 15-year, 20-year, or 25-year category and were to be depre-ciated by the 150-percent declining balance method. Buildings were to be depreciated by the straight-line method and over recovery periods of 27.5 years for residential buildings, 31.5 years for nonresidential buildings placed in service before May 13, 1993, and 39 years for nonresidential buildings placed in service after May 12, 1993. Railroad roadbeds and tunnels were prescribed a recovery period of 50 years and the straight-line depreciation method.

MACRS also provided for an “Alternative Depreci-ation System,” or ADS, that was less accelerated than GDS and thus could help avoid the alternative minimum tax. Under ADS, the recovery period was generally based on the old “class life” system, which

was a set of lives prescribed by IRS and based on studies of actual asset lives. The depreciation method was straight-line. Some types of property could only be depreciated using ADS. These were (1) tangible property used predominantly outside the U.S., (2) tax-exempt property, (3) property financed by tax-exempt bonds, (4) imported property covered by a Presidential order, or (5) farm property placed in service in a year in which the taxpayer had elected to expense preproduction period costs under section 263A.

Also included here were amounts the corporation elected to expense under section 179. For 2010, the maximum deduction was $500,000 ($535,000 for qualified enterprise zone businesses, renewal community businesses and qualified Liberty Zone property). In 2003, the definition of section 179 property was expanded to include computer software.

Amounts for special depreciation allowance and other depreciation were also included in this item. Beginning in 2001, certain qualified property placed in service after September 10, 2001, could have an additional 30% special depreciation allowance. Qualified property acquired and placed in service after May 5, 2003 and before January 1, 2005, may have an additional 50% depreciation allowance. Qualified property for the 30% or 50% special allowance includes, but is not limited to, tangible property depreciated under MACRS with a 20 year or less recovery period and computer software. But, it is important to note that the 30% and 50% special depreciation allowances will not apply to most property placed in service after 2004.

This item included amounts of depreciation re-ported as a part of cost of goods sold or capitalized under section 263A.

Disabled Access Credit [Form 8826]

The credit was allowed to small businesses that incurred expenses to make their business accessible to disabled individuals. An eligible small business was one with either gross receipts (less returns and allowances) of less than $1 million for the preceding Tax Year or not more than 30 full-time employees in the preceding Tax Year.

An eligible expenditure was one paid or incurred by an eligible small business to comply with the requirements of the Americans with Disabilities Act of 1990. Expenditures included: (1) removing architec-tural, communication, physical, or transportation barriers; (2) providing qualified interpreters or other methods of delivering materials to individuals with hearing impairments; (3) providing qualified readers, taped texts, or other methods of delivering materials


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to individuals with visual impairments; (4) acquiring or modifying equipment or devices for individuals with disabilities; or (5) providing other similar services, modifications, materials or equipment. The amount of the credit was 50 percent of the amount of the eligible expenditures for a year that exceeded $250 but did not exceed $10,000.

The disabled access credit was claimed as one of the components of the general business credit. For a discussion of the income tax limitations and carry-back and carryforward provisions of the credit, see “General Business Credit”, in this section. The compo-nents of the general business credit are shown separately in Table 21.

Dividends Received from Domestic Corporations

Dividends received from domestic corporations was a statistic computed from amounts reported on Schedule C. The amounts making up this statistic are shown in detail in Table 20 and represent most distributions from the earnings and profits of compa-nies incorporated in the United States. Dividends received from domestic corporations were generally those used in computing the special deduction from net income for dividends received. This is discussed under “Statutory Special Deductions” in this section.

Deductible dividends from Interest Charge Domes-tic International Sales Corporations (IC-DISC's) and from former Domestic International Sales Corpora-tions (DISC's) were included as domestic dividends received. Dividends from foreign sales corporation’s (FSC’s) and foreign subsidiaries were included under “Dividends Received from Foreign Corporations.”

Dividend distributions among member corpora-tions electing to file a consolidated return were eliminated from the statistics as part of the consoli-dated reporting of tax accounts. For tax purposes, dividends reported on these returns represented amounts outside the tax-defined affiliated group.

If portfolio stock was wholly or partially financed by debt, no dividend received deduction was allowed on the debt-financed portion of the stock. There was a separate line item and a separate deduction calcula-tion for dividends on debt-financed portfolio stock. This amount was included as part of domestic dividends even though it also represented debt-financed stock of foreign corporations.

Dividends or other distributions other than those detailed in Table 20 were included in “Other Receipts.”

Dividends received by S corporations were passed through to shareholders and reported on Form

1120S, Schedule K-1, Shareholders’ Shares of Income, Credits, Deductions, etc. and are not included in the statistics for this item in the Basic Tables section. These statistics are presented in the 1120S Basic Tables section as "Dividend Income" under "Portfolio Income (less deficit) distributed to shareholders."

Dividends Received from Foreign Corporations

These were dividends paid from the earnings and profits of companies incorporated in foreign countries.

Dividends received from foreign corporations out of U.S. source earnings and profits or from Foreign Sales Corporations (FSC’s) were usually eligible for the dividends received deduction, described in “Statutory Special Deductions,” below. Not eligible were dividends out of foreign earnings and profits and certain gains from the sale, exchange, or redemption of Controlled Foreign Corporation stock.

Because foreign dividend gross-up and includable income from controlled foreign corporations were not actual receipts, for statistical purposes they were excluded from dividends received. Both were combined and presented in the statistics as “Con-structive Taxable Income from Related Foreign Corporations,” discussed above.

Dividends received from foreign corporations by S corporations were not included in these statistics.

Domestic Production Activities Deduction [Page 1, Line 25]

The Domestic Production Deduction (DPD) was added as part of the American Jobs Creation Act and is available for Tax Years beginning after December 31, 2004. By keeping manufacturing and software development activities in the United States, exporters may claim a deduction for a percent of their income from qualified exports. The provision, which can be found under code section 199, was largely written to satisfy WTO objections to Extraterritorial Income (ETI) and Foreign Sales Corporation provisions. The credit is figured on Form 8903.

Effectively Connected Income (ECI) Deduction [Form 1120-F, Page 3, Line 26]

Home office deductions allocated and apportioned to effectively connected income from schedule H.

Employee Benefit Programs [Page 1, Line 24]


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Contributions made by employers to employee plans, such as death benefits, insurance, health, accident, sickness, and other welfare plans were deductible under Code sections 419 and 419A. Generally, such programs were not an incidental part of a pension, profit sharing, or other funded deferred compensation plan. Deductions for a welfare benefit fund were limited to the qualified cost of the fund for the taxable year, as described under Code section 419. Direct payments for employees' welfare were not included as employee benefits; only payments into a fund for employee benefits were included.

Included in the statistics for this item were amounts identified as part of the cost of goods sold, or capitalized under section 263A. Regulated investment companies and real estate investment trusts do not report employee benefits. Some mining companies could have reported an amount for a combination of welfare/retirement plans. When identified, the combined amount was included in the statistics for contributions to employee benefit plans.

Empowerment Zone and Renewal Community Employment Credit [Form 8844, line 10]

Although the EZE credit was a component of the general business credit, it had a special tax liability limitation. A qualified zone employee was any employee who performed substantially all of the services for an employer within an empowerment zone in the employer’s trade or business, and had his or her principal residence within that empowerment zone while performing those services. Both full and part-time employees could be qualified zone em-ployees. Qualified zone wages were any wages paid or incurred for services performed by a qualified zone employee. Although a qualified zone employee could earn any amount of wages, only the first $15,000 of qualified zone wages paid or incurred was taken into account for the credit. The $15,000 limit was reduced by the amount of wages paid or incurred during the year that was used in figuring the work opportunity credit for that employee. With certain exceptions, amounts paid or incurred by an employer for the education or training of the employee were treated as wages paid to an employee. In general, any individu-al employed for less than 90 days was not a qualified zone employee. However, there were exceptions to this for an employee who was terminated because of misconduct, who became disabled, or who was acquired by another empowerment zone corporation and who continued to be employed by that corpora-tion. The Renewal Community Employment credit, entitles employers located in a renewal community zone to a 15-percent wage credit on the first $10,000

of annual wages paid to employees residing in the renewal community zone.

Estimated Tax Penalty See “Overpayment or Amount Owed.”

Excess Net Passive Income Tax [Form 1120S, Page 1, Line 22a]

A Subchapter S corporation that had accumulated earnings and profits from a prior subchapter C status and also had net passive income greater than 25 percent of its gross receipts was taxed on the excess (net of related expenses) at the regular corporate tax rate of 35 percent. Passive investment income, in general, was gross receipts derived from rents, royalties, dividends, interest, annuities, or the sales or exchanges of stock or securities.

Foreign Dividend Income Resulting from Foreign Taxes Deemed Paid [Page 2, Schedule C, Line 15(a)]

See “Constructive Taxable Income from Related Foreign Corporations.”

Foreign Tax Credit [Page 3, Schedule J, Line 5a]

Code section 901 allowed a credit against U.S. income tax for income taxes paid to foreign countries or U.S. possessions. The credit could be claimed by domestic corporations, except S corporations, and by foreign corporations engaged in trade or business in the United States for foreign taxes paid on income effectively connected with the U.S. business. The U.S. income tax that could be reduced by the credit excluded the recapture taxes and the personal holding company tax. The credit was not allowed for S corporations because their income was primarily taxed through their shareholders; any creditable foreign taxes were also passed through to their shareholders. Regulated investment companies could elect under Code section 853 to allow their shareholders to claim any credit for the foreign taxes paid. However, if the election was not made, the regulated investment company could claim the tax credit.

The foreign tax credit was subject to a limitation that prevented the corporations from using foreign tax credits to reduce U.S. tax liability on U.S. sourced income. The credit was limited to a percentage of total U.S. income tax equal to the ratio of taxable income from foreign sources to worldwide taxable income. Previously this limitation was computed separately for foreign taxes paid or accrued with respect to nine categories of income. In 2006 the categories have changed to four. These are (1) Passive income; (2) General Category Income; (3)


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Section 901 (j) Income (Sanction Country Income); and (4) Income Re-sourced by Treaty. Foreign taxes in excess of the limitation for any one year could be carried back one year (two years for credits arising in a Tax Year beginning before October 23, 2004) and forward ten years (five years for credits that can be carried forward to any Tax Year ending before October 23, 2004). The carryover periods (one year back and ten years forward) were modified by the American Jobs Creation Act of 2004.

A corporation that claimed (or passed through) the foreign tax credit could not also claim a business deduction for the same foreign taxes paid. The credit could be reduced for taxes paid on foreign income from operations involving participation or cooperation with an international boycott. The foreign tax credit was not allowed for taxes paid to certain foreign countries whose government was not recognized by the United States, with which the United States severed or did not conduct diplomatic relations, or which supported international terrorism.

General Business Credit Δ [Form 3800, Line 32]

The general business credit consisted of a combi-nation of several individual credits * of which the following are edited by SOI: investment credit (Form 3468), research credit (Form 6765), low-income housing credit (Form 8586), disabled access credit (Form 8826), renewable electricity production credit (Form 8835), Indian employment credit (Form 8845), orphan drug credit (Form 8820), new markets credit, (Form 8874), credit for small employer pension plan startup costs (Form 8881), credit for employer-provided child care facilities and services (Form 8882), and credit for contributions to certain commu-nity development corporations (Form 8847), biodiesel fuels credit (Form 8864), low sulfur diesel fuel production credit (Form 8896), alternative motor vehicle credit (Form 8910), alternative fuel vehicle refueling property credit (Form 8911), qualified plug-in electric drive motor vehicle credit (Form 8936), qualified plug-in electric vehicle credit (Form 8834, Part I), the empowerment zone and renewal commu-nity employment credit (Form 8844), work opportunity credit (Form 5884), alcohol and cellulosic biofuel fuels credit (Form 6478), and credit for employer social security and Medicare taxes paid on certain employee tips (Form 8846). If a corporation claimed more than one of these credits, reported a carryfor-ward, had credits from a passive activity, or had the

Trans-Alaska pipeline liability fund credit, or had the general credits from an electing large partnership (Schedule K-1, Form 1065-B), Form 3800 was to be filed with the income tax return. The separate

components of the general business credit are shown in Table 21.

*The following general business credit forms are not edited: Form 8900, 8906, 8907, 8908, 8909, 8923, 8931, 8932, 8933 and 5884-A. However, the current year amount is displayed on the appropriate line of Form 3800 and included in the “credit allowed for the current year” (line 32).

The purpose of the general business credit was to provide a uniform limitation on the amount that could be used to reduce tax liability and to establish uniform rules for carrybacks and carryforwards. Each of the credits was computed separately. Total credits became the general business credit for the purpose of applying the maximum tax liability rules and the carryback and carryforward rules.

Except for the investment credits, S corporations computed these credits at the corporate level; the credits were then passed through to the sharehold-ers. For the investment credits, the S corporation reported the basis in the qualifying property to each shareholder. The shareholders themselves computed the credits. However, S corporations that were previously C corporations could use business credit carryforwards from their C-corporation status to reduce tax on their net recognized built-in gains.

According to Code section 38(c), the general busi-ness credit reduced the tax liability to the extent of 100 percent of the first $25,000 of net tax liability and 75 percent of the net tax liability over $25,000. An additional limitation was also imposed on the general business credit as a result of the alternative minimum tax.

When the credit exceeded the limitation in any year, the excess became an unused business credit that could be carried back 1 year and forward 20 years. (For Tax Years beginning before December 31, 1997, the carryback period was 3 years and 15 years forward). Carryforwards of the general busi-ness credit from prior years are shown separately in Table 21.

Income Subject to Tax [Page 1, Line 30]

This was generally the amount of income subject to tax at the corporate level. For most corporations, income subject to tax consisted of net income minus the “Statutory Special Deductions” described in this section. However, there were certain exceptions. S corporations were usually not taxable at the corpo-rate level and so did not have income subject to tax. Some, however, had a limited tax liability on capital gains and so were included in the statistics for this


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item. Likewise, regulated investment companies and real estate investment trusts generally passed their net income on to be taxed at the shareholder level; but any taxable amounts not distributed were included in income subject to tax. Because insurance companies were permitted to use reserve accounting for tax purposes, insurance income subject to tax was based on changes in reserve accounts; life insurance companies could also have been allowed an additional special deduction (discussed in “Statu-tory Special Deductions”). Consolidated returns that contain life insurance subsidiaries were not allowed to offset all of the life insurance subsidiary’s gains by losses from nonlife companies, so it was possible for such a consolidated return to show no net income but still have a positive amount of income subject to tax.

Income Tax [Page 3, Schedule J, Line 2]

Income tax was the amount of a corporation’s total tax liability calculated at the regular corporate tax rates in Code section 11 (or substitutes for section 11).

The rates of tax on taxable incomes below $18,333,333 were graduated (with some exceptions). Corporations other than members of a controlled group or personal service corporations used the following tax rate schedule. If taxable income is:

Over: But not

over: Tax is: Of the amount over:

$0 $50,000 15% $0 50,000 75,000 $7,500 +25% 50,000 75,000 100,000 13,750 +34% 75,000

100,000 335,000 22,250 +39% 100,000 335,000 10,000,000 .113,900 +34% 335,000

10,000,000 15,000,000 .3,400,000 +35% 10,000,000 15,000,000 18,333,333 .5,150,000 +38% 15,000,000 18,333,333 35% 0

The 39 percent and 38 percent rates were im-

posed to phase out the benefits of the lower brackets for high-income corporations.

Beginning with the 2006 Tax Year, members of controlled groups were required to complete the new Schedule O, Consent Plan and Apportionment Schedule for a Controlled Group to delineate the shared apportionment of their tax liability. See “Consent Plan and Apportionment Schedule for a Controlled Group” in this section for details. Personal service corporations (qualified under section 448 to use cash accounting) were taxed at a flat 35 percent on all of their taxable income.

Most income of S corporations was taxed only at the shareholder level. However, for S corporations that

had once been C corporations, the corporate income tax was imposed on certain long-term capital gains, recognized built-in gains, and excess net passive income. The taxes paid on capital gains or recog-nized built-in gains by S corporations were included in the corporate statistics as “Income Tax.”

The taxes paid on excess net passive income were excluded from “Income Tax” but were included in “Total Income Tax.”

A small number of corporations without net income had an income tax liability. These were corporations reporting all or part of their income under special life insurance rules, including consolidated returns filing a life insurance subsidiary.

Other adjustments made to income tax returns by the taxpayer and included in these statistics for income tax were: (1) deferred tax under section 1291(c)(2), where a corporation was a shareholder in a passive foreign investment company (PFIC) and received an excess distribution or disposed of its investment in the PFIC during the year; and (2) additional tax under section 197(f)(9)(B) where a corporation that elects to pay tax on the gain from the sale of an intangible under the related person exception to the anti-churning rules.

See also, “Total Income Tax before Credits” and “Total Income Tax after Credits.”

Indian Employment Credit [Form 8845]

This component of the general business credit was for employing members of American Indian tribes on Indian reservations. The credit was equal to 20 percent of the excess of wages and health benefits for such employees over the amount paid such employees in 1993, limited to $20,000 per employee.

For the income tax limitations and carryback and carryforward provisions that apply, see “General Business Credit” in this section.

Intangible Assets and Accumulated Amortization [Page 5, Schedule L, Line 13a(c)]

Intangible assets represented the total gross value of goodwill, contracts, formulas, licenses, patents, registered trademarks, franchises, covenants not to compete, and similar assets that were amortizable for tax purposes. Thus, specific intangible asset items were included in this category only if amortization (or depreciation) actually had been taken against them.

The amounts shown as accumulated amortization represent the portion of these intangible assets that were written off in the current year as well as in prior


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years. In general, intangible assets were the gross amounts before adjustments for amounts of accumu-lated.amortization. Some corporations, however, reported only the net amount of intangible assets after adjusting for amortization charges.

Interest [Page 1, Line 5]

Taxable interest, a component of total receipts, included interest on U.S. government obligations, loans, notes, mortgages, arbitrage bonds, nonexempt private activity bonds, corporate bonds, bank depo-sits, and tax refunds. The statistics also included dividends from savings and loans and mutual savings banks, federal funds sold, finance charges, and sinking funds. The interest received was reduced by the amortizable bond premium under Code section 171.

Interest received from tax-exempt state or munici-pal bonds and ESOP loans was not included in this item. Corporations were not allowed to offset any interest expense against interest income. However, if the corporation reported only a net amount, this figure was used in the statistics. See also, “Interest Paid.”

Interest received by S corporations was passed through to shareholders and reported on Form 1120S, Schedule K-1, Shareholders’ Shares of Income, Credits, Deductions, etc., and are not included in the statistics for this item in the Basic Tables section. These statistics are presented in the 1120S Basic Tables section as "Interest Income" under "Portfolio Income (less deficit) distributed to shareholders."

Interest on Government Obligations: State and Local [Page 5, Schedule M-1, Line 7 and Page 2, Form 8916-A, Part II, Line 1, column (c) or Page 3, Form 1120, Schedule K, Line 9 or Page 3, Form 1120S, Schedule K, Line 16a]

The interest received from certain government obligations was not subject to U.S. income tax. These tax-exempt obligations included those issued by states, municipalities, and other local governments, the District of Columbia, and U.S. possessions, including Puerto Rico.

For statistical presentation, this interest was in-cluded in total receipts. However, it was not included in net income (less deficit) or income subject to tax.

Interest Paid [Page 1, Line 18]

These amounts consisted of interest paid by cor-porations on all business indebtedness. For banking

and savings institutions, the statistics also included interest paid on deposits and withdrawable shares. For mutual savings banks, building and loan associa-tions, and cooperative banks, interest paid included amounts paid or credited to the accounts of deposi-tors as dividends, interest, or earnings under Code section 591. Interest identified as part of the cost of goods sold or capitalized under section 263A was excluded from cost of goods sold and included in the statistics as interest paid.

Inventories [Page 5, Schedule L, Line 3(d)]

This was the corporations’ end-of-year inventories as reported on their balance sheets. Inventories included such items as finished goods, partially finished goods (work in progress), new materials and supplies acquired for sale, merchandise on hand or in transit, and growing crops reported as assets by agricultural concerns. Inventories reported on balance sheets were book accounts and would not necessarily have corresponded to those reported for tax purposes in cost of goods sold.

Inventories reported on the returns of companies in financial industries were transferred during statistical processing to other balance sheet accounts (unless reported on a consolidated return with nonfinancial subsidiaries). For security brokers and dealers, commodity brokers and dealers, and holding and other investment companies (except bank holding companies), inventories were included in “Other Investments.” For the rest of the “Finance and Insurance” and “Management of Holding Companies” sectors, inventories were included in “Other Current Assets”. Inventories shown in the statistics for the “Finance and Insurance” and “Management of Holding Companies” sectors were those reported by consolidated financial companies with diversified nonfinancial subsidiaries.

See also, “Cost of Goods Sold.”

Inventory, Beginning of Year [Page 2, Schedule A, Line 1]

Closing inventories from the end of the previous year.

See also, “Inventory, End of Year.”

Inventory, End of Year [Page 2, Schedule A, Line 7]

These were ending inventories as calculated for tax purposes. Inventories included the portion of its raw materials and merchandise purchased for resale and not sold during the year. Statistical adjustments made to the current year components of cost of goods sold were not carried over into the capitalized


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inventory accounts, which were shown as reported by taxpayers (except for necessary corrections).


Investment Credit [Form 3468]

This credit was composed of five separate, unre-lated credits: the rehabilitation investment credit, the energy credit, the qualifying advanced coal project credit, qualifying gasification project credit, and qualifying advanced energy project credits.

The energy credit was allowed for equipment that used solar, geothermal, qualified fuel cell, and qualified micro-turbine property to generate electrici-ty, heat or cool a building or provide heat for a process.

The qualifying advanced coal project credit was allowed on investments in qualifying advanced coal projects. This project must be located in the United States and should be used to power a new electric generation unit or to refit to repower an existing electric generation unit.

The qualifying gasification project credit was allowed on qualified investments that employ gasifi-cation technology, carried out by an eligible entity. This credit was not allowed on any investments already claimed under the qualifying advanced coal project credit.

The qualifying advanced energy project credit is a credit based off a project that reequips, expands, or establishes a manufacturing facility for the produc-tion of property, fuel cells, and electric. The property must be used to produce energy from the sun, wind, geothermal deposits or other renewable resources.

The rehabilitation tax credit offsets the cost of rehabilitating a certified historic structure or the rehabilitation costs for any nonresidential building originally placed in service before 1936. The rehabili-tation had to be “substantial” and meet strict criteria for how much of the original structure was retained. The rehabilitation of historic structures had to be approved by an appropriate State or Federal official.

The investment credit was subject to recapture if the property was sold or converted to other uses. For S corporations, the investment credit was computed at the shareholder, not the corporate, level. The S corporation reported the basis in the qualifying property to each shareholder for this purpose.

For a discussion of the income tax limitations and carryback and carryforward provisions of the credit, see “General Business Credit” in this section. The

components of the general business credit were shown separately in Table 21.

Investments in Government Obligations [Page 5, Schedule L, Line 4(d)]

This balance sheet asset item comprised U.S. obligations, including those of instrumentalities of the Federal Government. State and local government obligations, the interest on which was excluded from gross income under section 103(a), were included in “Tax-Exempt Securities.”

Some mutual property and casualty insurance companies included investments in government obligations within other investments on the income tax return, Form 1120-PC. When identified, the amounts were included in the statistics for invest-ments in government obligations and excluded from other investments.

Land [Page 5, Schedule L, Line 12(d)]

Land, which was reported as a separate capital asset on the balance sheet, may be understated in this report because it could not always be identified. Some corporations may have included land as part of depreciable or depletable assets or included it in other investments. Whenever corporations included and identified land as part of depreciable assets, the amount was reclassified as land, but land improve-ments remained as depreciable assets.

Loans from Shareholders [Page 5, Schedule L, Line 19(d)]

This balance sheet liability item was regarded as long-term in duration and included loans to the company from holders of the company's stock.

Loans to Shareholders [Page 5, Schedule L, Line 7(d)]

This balance sheet asset item was regarded as long-term in duration and included loans to persons who held stock in the corporation.

Losses Incurred [Form 1120-PC, Schedule A, Line 26]


Low-Income Housing Credit [Form 8586]

The low-income housing credit was a credit for the acquisition of housing units rented to low-income persons allowed over 10 years. The annual credit was designed so that the taxpayer taking it received over the 10 years the present value of 70 percent of


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the basis of the low-income units in a residential building (30 percent in the case of certain federally subsidized new buildings or rehabilitated existing buildings).

The low-income housing credit could only be claimed if allocated to a residential rental project by a State housing authority and if it met the strict re-quirements for rental to low-income renters. If the project was sold or ceased to qualify in the first 15 years, the owner was required to repay a portion of the credit previously taken.

Part I is used to calculate the credit for builds places in service before January 1, 2008.

Part II is used to calculate the credit for buildings placed in service after 2007. The taxpayer can enter the current year LIHC from the 8609-A and also make adjustments to carryforwards and carrybacks of the LIHC credit. The Part II portion serves the same function as the lines on other general business credit forms whose credit is not subject to alternative minimum tax limitations.

The low-income housing credit was claimed as one of the components of the general business credit. For a discussion of the income tax limitations and carryback and carryforward provisions of the credit, see “General Business Credit.” The compo-nents of the general business credit are shown separately in Table 21.

Low Sulfur Diesel Fuel Production Credit [Form 8896]

Qualified small business refiners may claim a credit for qualified expenditures to produce low sulfur diesel fuel (Code Sec. 45H). The credit is equal to five cents per gallon of qualified low sulfur diesel fuel produced during the Tax Year at a qualified facility. The fuel must contain no more sulfur than 15 parts per million, and comply with the Environmental Protection Act (EPA) Highway Diesel Fuel Sulfur Control Requirements. To qualify as a small business refiner, the taxpayer cannot employ more than 1,500 individuals on any day during the Tax Year and its average daily refinery production of the one-year period ending on December 31, 2002, cannot exceed 205,000 barrels. Beginning in 2006, taxpayers that were not partnerships, S corporations, or coopera-tives were allowed to claim this credit directly on Form 3800, eliminating the need for those taxpayers to file Form 8896. The tax liability for this credit is no longer computed on Form 8896, instead it is com-puted as part of the General Business Credit on Form 3800. The Low Sulfur Diesel Fuel credit was claimed as one of the components of the general business

credit. For a discussion of the income tax limitations and carryback and carryforward provisions of the credit, see “General Business Credit” in this section. The components of the general business credit were shown separately in Table 21.

Mortgage and Real Estate Loans [Page 5, Schedule L, Line 8(d)]

In general, mortgage and real estate loans were the total amount a corporation loaned on a long-term basis, accepting mortgages, deeds of trust, land contracts, or other liens on real estate as security.

Because the return form did not provide a sepa-rate place for reporting any reserve for uncollectable mortgage and real estate loan accounts, such reserves may have been included in the allowance for bad debts, shown in this report as an adjustment to notes and accounts receivable. If a corporation reported an uncollectable mortgage and real estate loan reserve on a separate schedule, that amount was moved during statistical processing to allowance for bad debts.

Mortgages, Notes, and Bonds Payable [Page 5, Schedule L, Lines 17(d) and 20(d)]

Mortgages, notes, and bonds payable were sepa-rated on the balance sheet according to the length of time to maturity of the obligations. The length of time to maturity was based on the date of the balance sheet rather than on the date of issue of the obliga-tions. Accordingly, long-term obligations maturing within the coming year were reportable with short-term obligations as having a maturity of less than one year. Deposits and withdrawable shares may have been reported in mortgages, notes, and bonds payable by banks and savings institutions. When identified, such amounts were transferred to “Other Current Liabilities.”

Net Capital Gains [Schedule D, Lines 12 and 13]

In the tables in this report, capital gains net of capital losses were presented divided into two data items: “Net Short-Term Capital Gain Reduced by Net Long-Term Capital Loss” and “Net Long-Term Capital Gain Reduced by Net Short-Term Capital Loss.” A gain or loss from the sale or exchange of capital assets was short-term if the assets had been held for one year or less and long-term if they had been held for longer than one year. The distinction between long-term and short-term assets was maintained in the Code and in the reporting forms even though it did not affect tax liability.

For corporations, capital losses were generally deductible only from capital gains, so only net gains


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were included in the statistics. Excess net losses could be carried back as short-term losses to be applied against the net capital gains of the 3 preced-ing years; any losses remaining after carryback were carried over the 5 succeeding years. A net capital loss for a regulated investment company could be carried forward 8 years instead of 5 years. If the unused capital loss carryover was not eliminated within the prescribed span of years, it could not be taken. Regardless of origin, all carrybacks and carryovers were treated as short-term capital losses for carryback and carryover purposes.

In general, capital assets for tax purposes meant property regarded or treated as an investment, such as stocks and bonds. Code section 1221 defined the capital assets as all property held by the corporation except:

(1) stock in trade or other property included in inventory or held mainly for sale to customers;

(2) notes and accounts receivable acquired in the ordinary course of business;

(3) depreciable or real property used in the trade or business;

(4) copyrights, literary, musical, or artistic compo-sitions, or similar properties not acquired by purchase;

(5) publications of the United States Government not acquired by purchase;

(6) certain commodities derivative financial in-struments held by a dealer;

(7) certain hedging transactions entered into in the normal course of trade or business; and

(8) supplies regularly used in the trade or business.

Gains from constructive ownership transactions entered into after July 11, 1999, that involved any equity interest in pass-through entities such as partnerships, S corporations, trusts, regulated investment companies, and real estate investment trusts that would otherwise be treated as capital gains could be treated instead as ordinary income. Constructive ownership transactions included gains from notional principal contracts with the right to receive substantially all of the investment yield of an equity interest and the obligation to reimburse substantially all of any decline in value of the interest; a forward or futures contract to acquire an equity interest; and the holding of a call option and writing of a put option at substantially the same strike price and maturity date. A net underlying long-term capital gain had to be established by computing a net capital gain

as though the asset were acquired at its fair market value when the transaction was opened and sold at its fair market value when the transaction was closed. If not established, the net underlying long-term capital gain was treated as zero. Any long-term capital gain that exceeded the net underlying long-term capital gain was treated as ordinary income. Gains from constructive ownership transactions that were marked to market were excluded from this provision to be treated as ordinary income.

Although depreciable and real property used in the trade or business was defined as not a capital asset, gain on such property held for more than one year could be treated as long-term capital gain. See “Net Gain (or Loss), Noncapital Assets” below.

The capital gains of S corporations were passed through to their shareholders and not included in the corporations’ ordinary income (loss) from trade or business activities but were reported on Form 1120S, Schedule K-1, Shareholders’ Shares of Income, Credits, Deductions, etc. These statistics are pre-sented in the 1120S Basic Tables section as "Net short-term capital gain (less loss)" and "Net long-term capital gain (less loss)" under "Portfolio Income (less deficit) distributed to shareholders."

Net Gain (or Loss), Noncapital Assets [Page 1, Line 9]

This item includes all losses from the sale or ex-change of noncapital assets, but only those gains that were not treated as long-term capital gains. Noncapital assets included property used in a trade or business plus certain other transactions given special treatment by statute. After December 16, 1999, noncapital assets were expanded to also include certain financial assets such as:

(1) certain commodities derivative financial instru-ments held, acquired, or entered into by commod-ities derivatives dealers;

(2) any hedging transaction clearly identified as a.hedging transaction before the close of the day on which it was acquired, originated, or entered into; and

(3) supplies regularly used or consumed in the ordinary course of a trade or business.

A commodities derivative financial instrument is a commodities contract or other financial instrument with respect to commodities, for which the value or settlement price is calculated or determined by reference to a specified index as defined in Code section 1221(b). A commodities derivative dealer is an entity which regularly offers to enter into, assume, offset, assign, or terminate positions in commodities


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derivative financial instruments with customers in the ordinary course of a trade or business. A hedging transaction is any transaction entered into in the normal course of a trade or business primarily to manage one of the following: 1) risk of price changes or currency fluctuations involving ordinary property held (or to be held) and 2) risk of interest rate or price changes, or currency fluctuations, involving borrowed funds or ordinary obligations incurred (or to be incurred).

Rules governing the computation of a net gain or loss from noncapital assets were provided under Code section 1231. Transactions treated under these special provisions included:

(1) the sale or exchange of real or depreciable property used in a trade or business;

(2) the cutting or disposal of timber treated as a sale or exchange under Code section 631(a) and (b);

(3) the disposal of coal or iron ore treated as a sale under Code section 631(c);

(4) the sale or exchange of livestock (excluding poultry) used in a trade or business for draft, breeding, dairy, or sporting purposes, if held for at least 12 months (24 months for horses and cattle);

(5) the sale or exchange of unharvested crops sold with the land; and

(6) the involuntary conversion of property or capi-tal assets due to partial or total destruction, theft, seizure, requisition, or condemnation.

Long-term gains from section 1231 transactions were treated as long-term capital gains for tax purposes and were included in “Net Capital Gains” in these statistics. Losses under section 1231 were treated as ordinary losses, i.e., fully deductible from ordinary income. Amounts treated as long term gains were reduced by a number of provisions designed to recapture (as ordinary income) previous benefits. These provisions included: sections 1245 and 1250, recapturing some depreciation taken previously; section 1252, recapturing conservation and land clearing expenses upon the sale of some farmland; section 1254, recapturing certain depletion, intangible

drilling, and mine development expenses; and section 1255, recapturing some crop-sharing pay-ments if a farm is sold within 20 years of receiving the payments.

Statutory provisions allow that recognition of a gain or loss may be postponed under certain cir-cumstances. The postponement of gain recognition accounts for some differences in tax versus book

income. This difference is not presented in these statistics.

Gains and losses resulting from involuntary con-versions, due mostly to casualty and theft, received special treatment. Such losses were to be included in the computation of net gain or loss, noncapital assets. However, some corporations reported them in other deductions, in which case, the losses were included in the statistics for other deductions. No attempt was made to recompute the net gain or loss from noncapital assets or the carryover of losses subject to recapture rules for such returns.

Although this item was a part of corporate-level income for S corporations, the portion of gain treated as long-term capital gain under section 1231 was not a part of the corporations’ ordinary income (loss) from trade or business activities but rather was reported on Form 1120S, Schedule K-1, Shareholders’ Shares of Income, Credits, Deductions, etc.

Net Income (or Deficit) Δ [Page 1, Line 28]

This was net profit or loss from taxable sources of income reduced by allowable deductions. It differed from “Total Receipts Less Total Deductions” because it included “Constructive Taxable Income from Related Foreign Corporations” and excluded “Interest on Government Obligations: State and Local.” Net income generally differed from “Income Subject to Tax” by the “Statutory Special Deductions” allowed corporations. More information can be found under all these headings in this section.

Net income included income from the trade or business activities of S corporations, including ordinary gain from the sale of business property. Although the income was taxable to the sharehold-ers, it was used for the statistics as a measure of corporate business activity for these companies. For tax purposes, net income for S corporations excluded passive income, which was passed through to the shareholders and reported on Form 1120S, Schedule K-1, Shareholders’ Share of Income, Credits, Deductions, etc. Statistics on these items are presented in the 1120S Basic Tables as “Net income (less deficit) from a trade or business.” Although certain long-term capital gains were taxable to S corporations before the gains were passed through to the shareholders, these gains were excluded from net income.

The statistics for net income (or deficit) also in-cluded the "effectively connected income" of foreign corporations operating in the United States. General-ly, income was considered effectively connected if the foreign corporation conducted a trade or business


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in the United States and the income was attributable to that business.

Property and casualty insurance companies with premium income of $1,200,000 or less could elect to compute income tax on their taxable investment income only, deducting only expenses related to that income. Therefore, the statistics for net income included only net investment income for those companies. (Such a company with premiums of $600,000 or less was exempt from tax and so does not appear in these statistics.)

Net Long-Term Capital Gain Reduced by Net Short-Term Capital Loss

See “Net Capital Gains.”

Net Operating Loss Deduction See “Statutory Special Deductions.”

Net Short-Term Capital Gain Reduced by Net Long-Term Capital Loss

See “Net Capital Gains.”

Net Worth Net worth represented the shareholders' equity in

the corporation (total assets minus the claims of creditors). In the statistics, net worth comprised the net sum of the following items:

(1) capital stock; (2) additional paid-in capital; (3) retained earnings, appropriated; (4) retained earnings, unappropriated; (5) adjustments to shareholders’ equity; (6) less the cost of treasury stock.

New Markets Tax Credit [Form 8874]

The New Markets tax credit has been created to increase investments in low-income communities. The credit was equal to five percent of the investment in a qualified community development entity for the first three allowance dates and six percent of the investment for the next four allowance dates. The total credit available was equal to 39 percent of the investment over seven years.

The New Markets tax credit is a part of and subject to the limitations and carryover rules of the general business credit. The credit may not be carried back to Tax Years ending before January 1, 2001. Any unused credit at the end of the carryforward period

will be allowed as a deduction in the following Tax Year. The components of the general business credit are shown separately in Table 21.

Nonconventional Source Fuel Credit [Form 3800, Page 1, Line 1o]

The amount of the Nonconventional Source Fuel Credit is figured on Form 8907. This credit is allowed for the production of qualified fuel that was sold by a taxpayer to an unrelated person during the Tax Year. In general, the amount of the credit is $3 (adjusted for inflation) per barrel of oil-equivalent fuel, and produc-tion must occur within the U.S. or a U.S. Possession. Qualified fuels include the following if sold before 2008:

(1) Gas produced from biomass;

(2) Liquid, gaseous, or solid synthetic fuels pro-duced from coal; and

It also includes coke and coke gas (if sold after December 31, 2005) produced in a facility where the original use began with the taxpayer and is not produced from petroleum-based products.

For Tax Years after December 31, 2005 the Ener-gy Tax Incentive Act of 2005 made the nonconven-tional source fuel credit part of the general business credit, and will be subject to the limitation and carryforward rules of the general business credit.

Notes and Accounts Receivable [Page 5, Schedule L, Line 2a(c)]

In general, notes and accounts receivable were the gross amounts arising from business sales or services to customers on credit during the ordinary course of trade or business. These current assets would normally be converted to cash within 1 year. This category included commercial paper, charge accounts, current intercompany receivables, property improvement loans, and trade acceptances. Current nontrade receivables were generally included in other current assets.

Certain savings and loan associations reported loans and mortgages as notes and accounts receiva-ble. When identified, such mortgage loans were included in the statistics for mortgage and real estate loans, rather than notes and accounts receivable.

The gross amount of the receivables and the cor-responding adjustment account, allowance for bad debts, were reported on the balance sheets of most corporation income tax forms. For an explanation of the adjustment account, see “Allowance for Bad Debts.” Some corporations, however, reported only the net amount of the accounts receivable.


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Number of Returns This was a count of the returns filed by active

corporations on one of Form 1120-series returns. It included ordinary for-profit C corporations filing Form 1120 or its simplified version, S corporations electing to be taxed through their shareholders filing Form 1120S, foreign corporations with U.S. source income filing Form 1120-F, life insurance companies filing Form 1120-L, property and casualty insurance companies filing Form 1120-PC, Real Estate Invest-ment Trusts filing Form.1120-REIT and Regulated Investment Companies filing Form 1120-RIC. It did not include non-profit corporations, exempt farmers’ cooperatives, and many other incorporated organiza-tions that did not file corporation income tax returns. It also did not include the returns of inactive corpora-tions, defined as those reporting no item of income or deductions;.

See Section 3, Description of the Sample and Limitations of the Data.

Consolidated groups could file a single return covering many corporations, so the number of returns was not a count of the number of active corporations.

See “Consolidated Returns.”

Orphan Drug Credit [Form 8820]

This was a credit for 50 percent of the costs of testing drugs to be used for treating rare diseases, defined as those affecting fewer than 200,000 people or those occurring so infrequently that developing a drug to treat them would not be economical. This had been one of the “sunset” provisions (regularly reviewed and extended), but the Taxpayer Relief Act of 1997 made it a permanent part of the tax law.

The orphan drug credit was claimed as one of the components of the general business credit. For a discussion of the income tax limitations and carry-back and carryforward provisions of the credit, see “General Business Credit.” The components of the general business credit are shown separately in Table 21.

Other Assets [Page 5, Schedule L, Line 14(d)]

In general, other assets comprised noncurrent assets, which were not allocable to a specific account on the balance sheet and certain assets not identified as current or noncurrent. Both tangible and intangible assets were included in this category. Also included were assets such as: deposits on contracts, interest discounts, and guaranty deposits, when reported as noncurrent assets.

Other assets of life insurance companies included the market value of real estate and that portion of stock and bond holdings in excess of book value. For statistical purposes, negative balance sheet asset accounts have been moved to, and included in, the computation of other assets. This procedure was adopted to address the increased usage of negative items being reported on corporate balance sheets. This process may cause other assets to become negative in certain situations. When identified on the tax return, assets held for investment were not included in other assets.

Other Costs [Page 2, Schedule A, Line 5]


Other Credits and Payments [Form 1120-PC, Page 1, Line 14i]


Other Current Assets [Page 5, Schedule L, Line 6(d)]

Other current assets included assets not allocable to a specific current account listed on the balance sheet of the tax form and assets reported as short-term, but without identification of a specific current account.

Marketable securities, prepaid expenses (unless reported as long-term), nontrade receivables, coupons and dividends receivable, and similar items were included in this asset account. Deposits were included here for banks and deposit institutions. Also included were amounts in excess of billings for contract work in progress reported as current by construction corporations.

When reported by certain nonconsolidated finan-cial companies, inventories were included in the

statistics for other current assets, rather than for inventories. Those nonconsolidated financial compa-nies included banks, credit agencies, insurance companies, insurance agents, brokers, real estate operators, lessors, and condominium management and cooperative housing associations. Inventories were included in other current assets if reported by bank holding companies, whether a consolidated or nonconsolidated. However, if consolidated with nonfinancial subsidiaries, then inventories were not moved to other current assets to the extent they were attributable to the nonfinance subsidiaries.

Some property and casualty insurance companies included investments in government obligations and tax-exempt securities with other current assets on the


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income tax return, Form 1120-PC. When identified, the amounts were included in the statistics for investments in government obligations and tax-exempt securities and excluded from other current assets.

Other Current Liabilities [Page 5, Schedule L, Line 18(d)]

Other current liabilities included certain amounts due and payable within the coming year. The account was comprised of accrued expenses, as well as current payables not arising from the purchase of goods and services. Examples of other current liabilities were taxes accrued or payable, accrued employee accounts such as for payrolls and contribu-tions to benefit plans, dividends payable, overdrafts, accrued interest or rent, and deposits and withdraw-able shares of banking and savings institutions, if not reported as long-term by the corporation. For construction corporations, amounts for uncompleted contracts or jobs in progress were included in this item, if reported as current.

Other Deductions [Page 1, Line 26]

Other deductions comprised: (1) business ex-penses which were not allocable to a specific deduction item on the tax return, or which were not included elsewhere on the tax return, and (2) certain amounts which were given special treatment in the course of statistical processing. It also included adjustments reported as deductions.

The first category included such items as adminis-trative, general, and selling expenses; commissions (unless reported as cost of goods or salaries and wages); delivery, freight, and shipping expenses; sales discounts; travel and entertainment expenses; utility expenses not reported as part of the cost of goods sold; and similar items. For meal and enter-tainment expenses, generally only 50 percent was deductible.

The second category included intangible drilling costs, direct pensions (paid by a company to an individual but not to pension plans), employee welfare (but not payments to welfare or benefit plans), moving expenses (for employees), partner-ship net losses, and patronage dividends paid. Also included were itemized business deductions and other deductions unique to life and property and casualty insurance companies.

Losses from involuntary conversions which were reported as ordinary losses on Form 4797, Supple-mental Schedule of Gains and Losses, were included in the statistics for Net Gain (or Loss), Noncapital Assets. However, some taxpayers reported such

amounts as deduction items; if so, they were included in the statistics for “Other Deductions”. Also included were net foreign currency losses for regulated investment companies, life insurance increases in reserves, and policyholder dividends paid by insur-ance companies on participating policies (after certain adjustments).

The statistics for other deductions excluded amounts for amortization (except amortization of intangible drilling costs and from specified policy acquisition expenses of life insurance companies (IR Code section 848)), which were moved during statistical processing to “Amortization.”

Other Investments [Page 5, Schedule L, Line 9(d)]

This category generally included long-term non-government investments and certain investments for which no distinction could be made as to their current or long-term nature. Examples of non-government investments included stocks, bonds, loans to subsidi-aries, treasury stock reported as assets, and other types of financial securities.

Real estate not reported as a fixed asset could also be included. In certain instances, land and buildings owned by real estate operators (except lessors of real property other than buildings) were reported as other investments. Certain insurance carriers also included their real estate holdings (other than their home and branch office buildings) in this asset category.

When inventories were reported by companies in certain financial industries, the amounts were included in the statistics for other investments and excluded from inventories. For security brokers and dealers, commodity brokers, dealers, and exchanges, and holding and other investment companies (except bank holding companies), inventories were included in other investments unless the return was consoli-dated and included nonfinance subsidiaries. Invento-ries attributable to the nonfinance subsidiaries were not moved to other investments.

The statistics may be somewhat overstated by amounts that should have been reported for treasury stock. When treasury stock held for resale or for future distribution was reported as an asset, rather than as an offset to capital stock, the treasury stock was included in the statistics for other investments.

Some property and casualty insurance companies included investments in government obligations and tax-exempt securities in other investments on the income tax return, Form 1120-PC. When identified, these amounts were transferred to the appropriate accounts.


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Other Liabilities [Page 5, Schedule L, Line 21(d)]

Other liabilities were obligations which were not allocable to a specific account on the balance sheet and which were either noncurrent accounts, in general not due within 1 year, or accounts which could not be identified as either current or long-term. The excess of reserves for amortization, deprecia-tion, and depletion over the respective asset ac-counts was included in this balance sheet account.

Examples of other liabilities were deferred or un-earned income not reported as part of a current account, provisions for future or deferred taxes based on the effects of either accelerated depreciation or possible income tax adjustments, and principal amounts of employee and similar funds. Accounts and notes payable, borrowed securities, commis-sions, intercompany accounts, loans, overdrafts, and unearned income were also included. For statistical purposes, negative balance sheet liability accounts have been moved to, and included in, the computa-tion of other liabilities. This procedure was adopted to address the increased usage of negative items being reported on corporate balance sheets. This process may cause other liabilities to become negative in certain situations.

Other Receipts [Page 1, Line 10]

Other receipts included amounts not reported elsewhere on the return form. These included income from minor operations; cash discounts; income from claims, license rights, judgments, and joint ventures; net amount earned under operating agreements; profit from commissaries; profit on prior-years' collections (installment basis); profit on the purchase of a corporation's own bonds; recoveries of losses and bad debts previously claimed for tax purposes; refunds for the cancellation of contracts; auto lease inclusion income; and income from sales of scrap, salvage, or waste.

Unidentified and certain dividends received were also regarded as “other receipts.” For example, those from Federal Reserve and Federal Home Loan Banks and the following special classes of corpora-tions: corporations deriving a large percent of their gross income from sources within a U.S. possession, when they did not provide detailed attachments; tax-exempt charitable, educational, religious, scientific and literary organizations, and mutual and coopera-tive societies including farmers' cooperatives. Also included were any adjustment items reported by corporations and listed in other income, payments with respect to security loans,.foreign currency gains for regulated investment companies, and life insur-

ance decreases in reserves. See also, “Business Receipts.”

Overpayment or Amount Owed [Page 1, Line 35]

All corporations with more than minimal tax liability were required to have settled their liability by the time their returns were due for their accounting year, within specified tolerances. They were required to estimate their liability at the beginning of their Tax Year and make payments on this estimated tax liability at least quarterly. If estimated tax payments were less than final tax liability for the year, within the allowed tolerances, the corporation was assessed a penalty. The corporation could count as tax payments its “Credit for Tax Paid on Undistributed Capital Gains”, “Credit for Federal Tax on Fuels”, and “Refundable Credits” (see these headings, above). A property and casualty insurance company could also claim a credit for taxes paid by a reciprocal (see “Reciprocal Tax”) and for certain other payments and credits it could have been required to make. A corporation that requested an extension of time to file its tax return was required to pay any final estimated tax liability not already covered (see “Tax Deposited with Form 7004”). When the corporation finally filed its return for the year, it would seldom have paid exactly the final liability; most corporations would have had either an overpayment or an amount owed.

Estimated tax payments were required of any corporation expecting to owe a tax liability of $500 or more for the year. The payments had to be made quarterly, on the fifteenth day of the fourth, sixth, ninth, and twelfth months of the company’s account-ing year. If the total payments for the year were greater than the liability shown on the return, the overpayment could be either refunded or applied to next year’s estimated tax liability. If a corporation realized before it filed its return that it had overpaid, and the overpayment was at least $500 and at least 10 percent of tax liability for the year, it could apply for an immediate refund of the excess payment. The application had to be made within 2-1/2 months of the close of its taxable year.

If a corporation had $500 or more of tax liability on the due date of its return and had not made quarterly estimated tax payments of at least 25 percent (each quarter) of the liability shown on its return or 25 percent of the tax it paid in the previous year, it was liable for a penalty for underpayment of estimated tax. This penalty, which was calculated at the current interest rate prescribed by IRS, became a part of the amount owed when the corporation filed its return. However, the penalty did not apply if there was a legitimate reason for the underpayment.


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Foreign insurance companies with effectively connected income (as filed on Form 1042-S) may have reported U.S. income tax paid or withheld at source, which would be considered in their tax liability computation. These amounts are included in “Over-payment or Amount Owed.” The components of the tax payment schedule are shown in Tables 18 and 20.

Overpayments less Refund [Page 1, Line 32a]

This was the net estimated tax payments, after deducting any amount previously refunded, remain-ing to be credited when the corporation’s tax return was filed. See “Overpayment or Amount Owed.”

Passive Activity Credits [Form 3800, Lines 3 and 5]

The General Business Credit that could be claimed by personal service corporations and closely held corporations was subject to an additional limitation if the component credits were generated in a passive activity. The total amount of such credits and the amount allowed in 2009 are shown in the computation of the general business credit in Table 21. A personal services corporation was one whose principal activity was the performance of personal services that were substantially performed by employee-owners who owned more than 10 percent of the fair market value of the corporation’s stock. A closely held corporation was a corporation that at any time during the last half of the Tax Year had 50 percent or more of the value of its outstanding stock owned directly or indirectly by not more than five individuals and was not an S corporation or a personal service corporation. Passive activities generally included trade or business activities in which the corporation did not materially participate for the Tax Year and, with exceptions, rental activities regardless of the corporation’s participation.

Penalty for Underpayment of Estimated Tax [Page 1, Line 33]


Pension, Profit-Sharing, Stock Bonus, and Annuity Plans [Page 1, Line 23]

This deduction was the current year’s deductible contributions to qualified pension, profit-sharing, or other funded deferred compensation plans. Contribu-tions made by employers to these plans were deductible under Code section 404 subject to limits on contributions for owners, officers, and highly paid

employees. For defined-benefit plans, contributions were also limited based on actuarial computations of the amount necessary to fund the promised benefits.

The statistics included amounts from “Cost of Goods Sold” and “Other Deductions” identified as pensions (unless clearly direct pensions), annuity plans, 401(k) plans, profit-sharing plans, retirement plans, and stock bonus plans. Any amounts identified as part of cost of goods sold or capitalized under section 263A were excluded from cost of goods sold and included in these statistics. The combined amount for companies other than mining companies that reported an amount for a combination of wel-fare/retirement plans was included in the statistics for contributions to pension and profit-sharing plans.

This item was not reported for regulated investment companies and real estate investment trusts.

Portfolio Income (less deficit) Portfolio income (less deficit) is interest, dividends,

annuities and royalties, as well as gain or loss from the disposition of income-producing or investment property that is not derived in the ordinary course of trade or business.

Prior Year Minimum Tax Credit [Form 8827, Line 8]

Corporations received a credit against their regular income tax liability for alternative minimum taxes paid in prior years to prevent double taxation of the same income. The minimum tax was imposed currently on income for which tax liability was only deferred under the regular tax; when the deferral ended and the income became taxable under the regular tax, credit was given for the taxes already paid on that income. The minimum tax credit thus acted as a mechanism to coordinate the two tax systems. The credit was limited to the excess of regular tax after credits over the current year tentative minimum tax. Any unused portion of the prior year minimum tax credit could be carried forward indefinitely to reduce the regular tax. The credit was not designed to reduce any minimum tax liability. There were no carryback provisions for this tax credit.

See also, "Alternative Minimum Tax."

Purchases [Page 2, Schedule A, line 2]

This is the total of items purchased during the year for resale or to become a part of goods manufactured or prepared for sale. See “Cost of Goods Sold.”

Qualified Electric Vehicle Credit Δ [Form 8834, Line 13]


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A qualified electric vehicle was one having at least four wheels, manufactured primarily for use on public roads, and powered primarily by an electric motor drawing current from rechargeable batteries, fuel cells, or other portable sources of electrical current. In addition, the original use of the vehicle must begin with the taxpayer, acquired for taxpayer’s own use, and not for resale. The credit was equal to the lesser of $2,500 or 10 percent of the cost of the vehicle (after reduction by any Section 179 deduction) for vehicles placed in service after February 17, 2009 and before January 1, 2012. The basis of each vehicle must be reduced by the amount of the credit. Vehicles qualifying for this credit were not eligible for the deduction for clean-fuel vehicles under Section 179A. If the vehicle no longer qualifies for the credit within 3 years of the date placed in service, part or all of the credit must be recaptured.

Qualified Plug-In Electric Drive Motor Vehicle Credit Δ [Form 8936, Line 8]

A qualified plug-in electric drive motor vehicle was a new vehicle having at least four wheels, with a gross vehicle weight of less than 14,000 pounds and powered primarily by an electric motor drawing electricity from a rechargeable battery that has a capacity of not less than 4 kilowatt hours. In addition, the original use of the vehicle must begin with the taxpayer, acquired for taxpayer’s own use and not for resale. The credit was equal to the allowable credit for the year, make, and model of the vehicle multip-lied by the percentage of business use for each vehicle. The basis of each vehicle must be reduced by the amount of the credit. If the vehicle no longer qualifies for the credit within 3 years of the date placed in service, part or all of the credit must be recaptured.

Reciprocal Tax [Form 1120PC, Page 1, Line 5]

A property and casualty insurance company with reciprocal or interinsurance arrangements with another entity (an ”attorney-in-fact”) could elect to allocate to the other entity deductions equal to those actually claimed by the other entity for the allocated insurance. In effect, this caused the net income from the transaction to be taxable to both entities, but since both might not have been taxable at the same rate, Code section 835 taxed the income to the insurance company at the highest corporate rate and allowed the company to take a credit for any taxes paid by the other entity. The Reciprocal Tax and the Credit by Reciprocal were included in “Total Income Tax After Credits” in the general tables and were shown separately in Table 20.

Refundable Credits [Page 1, Line 32(g)]

These credits are from Form 3800, line 19c and Form 8827, line 8c. Form 3800, line 19c is the refundable amount for a corporation electing to accelerate the research credit. Form 8827, line 8c is the refundable amount for a corporation electing to accelerate the minimum tax credit.

Renewable Electricity Production Credit [Form 8835]

Form 8835 was used to claim the renewable elec-tricity, refined coal, and Indian coal production credit. This credit is allowed only for the sale of electricity, refined coal, or Indian coal produced in the United States (or U.S. possessions) from qualified energy resources at a qualified facility. The credit includes the following qualifying resources and facilities for the production of electricity: wind, closed-loop biomass (generally organic plants grown for the sole purpose of being used to generate electricity), poultry waste, open-loop biomass (agricultural livestock waste nutrients and solid wood waste materials), geother-mal energy, solar energy, small irrigation power, municipal solid waste, and qualified hydropower production. The credit period for electricity produced from renewable energy sources could be claimed over a five or ten year period, depending on the facility. Beginning in 2006, the tax liability limit and allowable credit for qualified facilities placed in service prior to October 23, 2004 could no longer be computed on Form 8835, instead this was done as part of Form 3800, General Business Credit.

The renewable electricity production credit was included in the general business credit shown in the tables. For a discussion of the income tax limitations and carryback and carryforward provisions of the credit, see “General Business Credit.” The compo-nents of the general business credit are shown separately in Table 21.

Rent Paid on Business Property [Page 1, Line 16]

This deduction consisted of rents paid for the use of land, buildings, or structures, and rents paid for leased roads, and work equipment for railroad companies. Also included in rents paid was the leasing of vehicles. Auto lease inclusion income, required by law to offset this deduction for business-es that lease luxury automobiles, was reported in other receipts. Some corporations reported taxes paid and other specific expenses with rents paid. When identified, those items were included in the statistics for the respective deductions and excluded from rents paid.


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Rent identified as part of the cost of goods sold, or capitalized under section 263A, was excluded from cost of goods sold and included in the statistics as rent paid on business property.

Rents [Page 1, Line 6]

These were the gross amounts received for the use or occupancy of property by corporations whose principal activities did not involve operating rental properties. Expenses related to rental property, such as depreciation, repairs, interest paid, and taxes paid, were not deducted directly from the rental income, but were reported as business deductions.

When rents were a significant portion of a corpora-tion’s operating income, they were included in the statistics for business receipts rather than in rents. These corporations included some manufacturers and public utility companies, as well as businesses whose principal operating income was expected to be rents, such as hotels, motels, and other lodging places. For real estate operators, rental income was included in business receipts if the expense schedule indicated that the owner operated the building rather than leased it. No rent was reported for regulated investment companies (RICs). S corporations reported income from rents on Form 1120S, Sche-dule K-1, Shareholders’ Shares of Income, Credits, Deductions, etc. and are not included in the statistics for this item in the Basic Tables section. These statistics are presented in the 1120S Basic Tables section.

Repairs [Page 1, Line 14]

Repairs reported as an ordinary and necessary business expense were the costs of maintenance and incidental repairs that did not add to the value or appreciably prolong the life of the property. Expendi-tures for permanent improvements, which increased the basis of the property, were required to be capitalized and depreciated rather than deducted currently. Regulated investment companies did not report repairs.

Research Activities Credit [Form 6765]

The research activities tax credit is a credit for qualified research expenses and basic research payments to universities and other qualified organiza-tions. The research credit is a credit taken upon expenses paid or incurred for qualified research as defined by Section 174 of the Internal Revenue Code. The methods to calculate the credit are the Regular Credit and Alternative Simplified Credit.

Research is limited to research undertaken to discover information that is technological in nature and useful in the development of a new or improved business component. The research had to be conducted within the United States and could not involve the social sciences, arts, or humanities. Research funded by another person, a grant, or a government agency were also ineligible for the credit. For qualified clinical testing expenses relating to drugs for certain rare diseases, taxpayers can elect to claim the credit using Form 8820, Orphan Drug Credit.

For a discussion of the income tax limitations and carryback and carryforward provisions of the credit, see “General Business Credit.” The components of the general business credit are shown separately in Table 21.

Retained Earnings, Appropriated [Page 5, Schedule L, Line 24(d)]

Earnings set aside for specific purposes and not available for distribution to shareholders were included under this heading. Included were guaranty funds (for certain finance companies), reserves for plant expansion, bond retirements, contingencies for extraordinary losses, and general loss reserves. Also included was the total amount of all reserves not defined as valuation reserves or reserves included in other liabilities. Specifically excluded were the reserves for bad debts, depreciation, depletion, and amortization, which were shown separately in this report. Unrealized appreciation was included in retained earnings unappropriated. Unrealized profits were included in other liabilities. Unearned income, if not current, was also included in other liabilities. Any amount of retained earnings not identified as appro-priated or unappropriated was considered unappro-priated for purposes of these statistics.

Retained Earnings, Unappropriated [Page 5, Schedule L, Line 25(d)]

Retained earnings, unappropriated, consisted of the retained earnings and profits of the corporation less any reserves (these reserves were shown in the statistics as Retained Earnings, Appropriated). Dividends and distributions to shareholders were paid from this account. These accumulated earnings included income from normal and discontinued operations, extraordinary gains or losses, and prior period adjustments. Also included were undistributed or undivided earnings (income or profits), and earned surplus. For railroads, unappropriated retained earnings included additions to property and funded debt retired through income and surplus. The statistics presented here are net amounts after


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reduction for negative amounts reported and include adjustments to shareholders equity reported by the taxpayer.

Adjustments reported by the taxpayers primarily consisted of unrealized gains and losses from securities held “available for sale.” Also included in adjustments, guarantees of employee stock owner-ship plan debt, and compensation related to em-ployee stock award plans.

Returns of Active Corporations These returns were the basis for all financial statis-

tics presented in the report. They comprised the vast majority of the returns filed, and were defined for the statistics as returns of corporations reporting any income or deduction items, including tax-exempt interest. Although corporations in existence during any portion of the taxable year were required to file a return whether or not they had income and deduc-tions (Code section 6012(a)(2)), inactive corpora-tions’ returns were excluded from the statistics. See Section 3, Description of the Sample and Limitations of the Data.

Returns With Net Income See “Net Income (or Deficit).”

Royalties [Page 1, Line 7]

Royalties were gross payments received, general-ly on an agreed percentage basis, for the use of property rights before taking deductions for depletion, taxes, etc. Included were amounts received from such properties as copyrights, patents, and trade-marks; and from natural resources such as timber, mineral mines, and oil wells. Expenses relating to royalties, depletion or taxes, were not deducted directly from this income, but were reported among the various business deductions from total gross income. No royalties were included in the statistics for regulated investment companies and real estate investment trusts. S corporations reported this item on Form 1120S, Schedule K-1, Shareholders’ Shares of Income, Credits, Deductions, etc. and are not included in the statistics for this item in the Basic Tables section. These statistics are presented in the 1120S Basic Tables section as "Royalty Income (less loss)" under "Portfolio Income (less deficit) distributed to shareholders."

Excluded from the statistics were certain royalties received under a lease agreement on timber, coal deposits, and domestic iron ore deposits, which were allowed special tax treatment. Under elective provi-sions of Code section 631, the net gain or loss on such royalties was included in the computation of net

gain or loss on sales or exchanges of certain busi-ness property under Code section 1231. If the overall result of this computation was a net gain, it was treated as a long-term capital gain. If the overall result was a net loss, it was fully deductible in the current year as an ordinary noncapital loss. See also, the discussions of “Net Capital Gains” and “Net Gain (or Loss), Noncapital Assets.”

S Corporation Returns Form 1120S, U.S. Income Tax Return for an S

Corporation, was filed by corporations electing to be taxed through their shareholders under Code section 1362. These companies reported corporate income and deductions from their conduct of trade or business, but generally allocated any income or loss to their shareholders to be taxed only at the individual level. Portfolio income (loss), net rental real estate income (loss), net income (loss) from other rental activities, and other income (loss) were not included in net income (loss) from ordinary trade or business but were allocated to shareholders to be reported on their returns.

Only corporate-level income of S corporations was included in the Basic Tables section of this report. S corporation trade or business income and deductions were included in the general tables and also shown separately in 1120S Basic Tables 7 and 8. Data on rental and investment income allocated to sharehold-ers is presented in 1120S Basic Tables 1 through 6 and is also available in the Corporation Source Book (Publication 1053).

Subchapter S of the Internal Revenue Code, from which these corporations take their name, provided a set of restrictive criteria which a company had to meet in order to qualify. For Tax Years beginning after 2004, S corporations had to meet the following criteria:

(1) no more than 100 shareholders;

(2) only individuals as shareholders (with an ex-ception for estates and trusts, including charit-able remainder trusts);

(3) no nonresident alien shareholders; and (4) only one class of stock. For Tax Years beginning after 1997, exempt or-

ganizations described in section 401(a) or 501 (c)(3) are permitted to be shareholders.

Corporations that were ineligible to be treated as S corporations were:

(1) banks or similar financial institutions using the reserve method of accounting for bad debts under section 585;


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(2) life insurance companies;

(3) corporations electing to take the U.S. posses-sions tax credit;

(4) Interest-Charge Domestic International Sales Corporations (IC-DISC) or former DISCs; and

(5) affiliated group members eligible for inclusion on a consolidated return.

The Small Business Job Protection Act of 1996 provided significant reform for S corporations. This legislation contained 17 provisions relating to S corporations. For more information on this legislation, see Wittman, Susan, “S Corporation Returns, 1997,” Statistics of Income Bulletin, Spring 2000, Volume 19, Number 4.

Some S corporations were subject to certain spe-cial taxes at the corporate level. See “Excess Net Passive Income Tax” and “Income Tax” in this section.

Salaries and Wages [Page 1, Line 13]

Salaries and wages included the amount paid for the Tax Year, less any amounts paid for the work opportunity credit, empowerment zone employment credit, Indian employment credit, or welfare-to-work credit. Also included were expenses, such as bonuses, directors’ fees, wages, payroll, and salaries listed in the other deductions schedule. Excluded were items deductible elsewhere on the return, such as contributions to a 401(k) plan, amounts contri-buted under a salary reduction agreement, or amounts included in the cost of goods sold. Also excluded was compensation of officers since it was listed as a separate deduction item on the return.

Section 857(b)(5) Tax [Form 1120-REIT, Page 3, Schedule J, Line 2(c)]

Real estate investment trusts were required to derive at least 95 percent of their income from portfolio investments (dividends, interest, capital gains) and real estate, and at least 75 percent of their income from real estate investments (rents, interest on mortgage bonds, sales of rental or foreclosure property). If these limits were not met, the shortfall was subject to a special tax under Code section 857(b) (5). This tax is a component of “Total Income Tax Before Credits” and is shown separately in Table 20.

Size of Business Receipts Returns for nonfinance industries were classified

by size of gross receipts from sales and operations. Returns of industries within the “Finance and Insur-

ance” and “Management Holding Companies” sectors were classified by size of total receipts (the sum of business receipts and investment income). See also, “Business Receipts” and “Total Receipts.”

Statutory Special Deductions [Page 1, line 29c]

Statutory special deductions in the tables was the sum of the deductions for net operating loss carryov-ers from prior years and the special deductions for dividends and other corporate attributes allowed by the Code. These deductions were in addition to ordinary and necessary business deductions and were shown in the statistics as deductions from net income. In general, net income less statutory special deductions equaled income subject to tax. The following components of Statutory Special Deduc-tions are shown separately in Table 20.

Δ Net operating loss deduction. This deduction was the result of prior-year net operating losses. For large and mid-sized corporations, net operating losses (NOLs) could have been carried back to reduce any taxes paid in the 3 years previous to the loss year (2 years for NOLs incurred in Tax Years beginning after August 5, 1997), and any remaining amounts carried forward for 15 years (20 years for NOLs incurred in Tax Years beginning after August 5, 1997). A new provision added in the American Recovery and Reinvestment Act of 2009 allows small businesses to carry back losses incurred in 2008 up to 5 prior years. Amounts carried back, however, would not have appeared on the returns used for the statistics in this report. This item represents amounts carried forward from previous years and applied to reduce taxable income in the current year.

Total special deductions was the sum of the following deductions:

(1) Dividends received deduction. This deduc-tion was based on the type of stock owned and the extent of ownership. Generally, divi-dends from other domestic members of a company’s affiliated group were deducted 100 percent, those from other domestic com-panies owned 20 percent or more were al-lowed an 80 percent deduction, and those owned less than 20 percent were allowed a 70 percent deduction. These percentages were reduced if the stock was debt-financed or if it was preferred stock of public utilities that were allowed a deduction for dividends paid. In the case of life insurance companies, the dividend received deduction (other than the 100-percent deduction) was further re-duced by the share of the company’s invest-ment income attributed to


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A deduction for dividends received from a foreign corporation was allowed if the foreign corporation had been engaged in a trade or business within the United States for at least 3 years and if at least 50 percent of its gross in-come was effectively connected U.S. trade or business income. The deduction was allowed only for dividends attributable to income earned in the United States, and only if the U.S. corporation owned at least 10 percent of the stock of the foreign corporation.

The total dividends received deduction was further limited based on net income. Generally, the 70- and 80-percent deductions could not exceed 70 and 80 percent of net income less the 100-percent deductions for dividends re-ceived from affiliated groups, foreign sales corporations, and small business investment companies. This limitation did not apply if the corporation had a net operating loss (even if the loss was caused by the dividends received deduction).The various categories of stock ownership and the percentages that were de-ductible are shown on Form 1120, Schedule C (reproduced in Section 6). See also, “Divi-dends Received from Domestic Corporations” and “Dividends Received from Foreign Corpo-rations” in this section.

(2) Deduction for dividends paid on certain public utility stock. This special deduction was for dividends paid on preferred stock is-sued by regulated telephone, electric, gas, or water companies before October 1, 1942, or issued to replace such stock. Companies were allowed to deduct 40 percent of the smaller of such dividends or taxable income computed without this deduction.

(3) Deduction for dividends paid (Forms 1120-RIC and 1120-REIT). Regulated investment companies (RICs) and real estate investment trusts (REITs) were required to distribute vir-tually all (90 percent for both returns types) of their taxable income to their shareholders in the form of dividends to qualify for their special status. Their taxable income was reduced by the dividends they paid (which were taxable to the recipients), and they generally paid no cor-porate tax. This special deduction represented those required distributions.

(4) Section 857(b)(2)(E) deduction (Form 1120-REIT). This deduction was equivalent to the tax imposed on real estate investment trusts (REITs) that failed to meet the restrictions im-posed on their sources of income. Generally, at least 75 percent of their income had to come

from real estate investments and at least 95 percent from investment sources of all kinds. A tax of 100 percent was imposed on the net in-come attributable to the greater of the amounts by which the trust failed to meet the 75 or 95 percent income test, and a deduction was al-lowed to prevent the same income from being taxed under the income tax.

(5) Section 806(a) small life insurance compa-ny deduction. A deduction equal to 60 per-cent of life insurance company taxable income not exceeding $3,000,000 was allowed for a “small” life insurance company, defined as one with assets less than $500,000,000. The de-duction was phased out for “small” life insur-ance companies with life insurance company taxable income between $3,000,000 and $15,000,000. This item is included in “Statutory Special Deductions, Total,” but is not shown separately in Table 20.

Tax Deposited with Form 7004 [Page 1, Line 32(e)]

This is the amount of the corporation’s estimated tax liability deposited with the filing of Form 7004, Application for Automatic Extension of Time to File Corporation Income Tax Return, as reported on the corporation’s income tax return for the year. The automatic extension of time to file a corporate tax return was 6 months, and any remaining tax liability was required to be paid with the request for an extension. See “Overpayment or Amount Owed.”

Tax-Exempt Securities [Page 5, Schedule L, Line 5(d)]

This balance sheet asset item comprised: (1) state and local government obligations, the interest on which was excludable from gross income under section 103(a); and (2) stock in a mutual fund or other regulated investment company that distributed exempt-interest dividends during the Tax Year of the corporation. Examples included bond anticipation notes, project notes, Public Housing Authority bonds, and state and local revenue bonds.

Tax from Section I and Tax from Section II [Form 1120-F, Page 1, Lines 1 and 2]

Foreign corporations with income effectively con-nected to a trade or business conducted in the U.S. were taxable at U.S. corporation income tax rates on that income, but they could also have been taxable on income not “effectively connected” with a U.S. trade or business (generally, portfolio investment and certain transportation income) just as nonresident


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foreign corporations were. On Form 1120-F, the tax on income not effectively connected with a U.S. trade or business was called “Tax from Section I” and the tax on effectively connected income was called “Tax from Section II.” Only the “Tax from Section II” is included as a component of “Income Tax” and “Total Income Tax” in the general tables in this report. It is also shown as a separate item in the tables devoted to foreign corporations, Tables 10 and 11.

“Tax from Section II” included income tax calcu-lated at the U.S. corporate tax rates on effectively connected income, recapture taxes, and the alterna-tive minimum tax. It was reduced by the foreign tax credit, nonconventional source fuel credit, qualified electric vehicle credit, general business credit, and credit for prior year minimum tax.

The “Tax from Section I” from returns that also had effectively connected income is shown as a separate item in Tables 10 and 11, but is excluded from all other tables in the report. (Returns of foreign corpora-tions that had no income effectively connected with a U.S. trade or business were excluded from the statistical sample.)

Tax on Net Income from Foreclosure Property [Form 1120-REIT, Page 3, Schedule J, Line 2(b)]

Real estate investment trusts that met the income requirements to qualify as REITs (see “Section 857(b)(5) Tax”), were generally taxable at the shareholder rather than at the corporate level. An exception was sales of certain property they had acquired by foreclosure; the REIT could elect to be taxed at the top corporate rate of 35 percent on any gain from such transactions. This tax is included as a component of “Total Income Tax” (before and after credits) and is shown separately in Table 20.

Tax on Net Income from Prohibited Transactions [Form 1120-REIT, Page 3, Schedule J, Line 2(d)]

Real estate investment trusts were forbidden to engage in real estate development or sales (except in the course of their rental or financing business). Any profit made in such transactions was subject to a 100 percent tax. This tax is included as a component of “Total Income Tax” (before and after credits) and is shown separately in Table 20.

Tax Refund [Page 1, Line 36]

See "Overpayment or Amount Owed.”

Tax Year Tax year (income year) in this publication refers to

the year covering accounting periods ending July 2010 through June 2011. The corporation returns included a span of over 23 months between the first-included accounting period, which began on August 1, 2009, and closed on July 31, 2010, and the end of the last–included accounting period, which began on July 1, 2010, and closed on June 30, 2011. There-fore, this report shows income received or expenses incurred during any or all of the months in the 23-month span. This span, in effect defines the tax year in such a way that the non-calendar year ended accounting periods are centered by the calendar year ended accounting period. The calendar year made up 86.6 percent of the number of returns for Tax Year 2010. (See “Introduction” in Section I.)

Taxable Income [Page 1, Line 30]

This line item from Form 1120 is called “Income Subject to Tax” in this report.

Taxes Paid [Page 1, Line 17]

Taxes paid included the amounts reported as an ordinary and necessary business deduction as well as identifiable amounts reported in the cost of goods sold schedules or capitalized under section 263A. Included among the deductible taxes were ordinary state and local taxes paid or accrued during the year; social security and payroll taxes; unemployment insurance taxes; excise taxes, import and tariff duties; and business, license and privilege taxes. Income and profit taxes paid to foreign countries or U.S. possessions were also deductible unless claimed as a credit against income tax. However, S corporations excluded any foreign taxes from the deduction for taxes paid, instead allocating them to their shareholders (who might either deduct them or take a foreign tax credit for them). Regulated invest-ment companies also had to exclude those foreign taxes from the deduction for taxes when they elected under Code section 853 to allow their shareholders to claim a foreign tax credit (or a deduction) for the foreign taxes paid. See also, “Foreign Tax Credit.”

Taxes not deductible generally included Federal income and excess profits taxes, gift taxes, taxes assessed against local benefits, taxes not imposed on the corporation, and certain other taxes, including state or local taxes that were paid or incurred in connection with an acquisition or disposition of property. Taxes related to the acquisition of property


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were to be treated as part of the cost of the property, while taxes related to the disposition of property were to be treated as a reduction in the amount realized from the disposition.

Some corporations included sales, excise, and related taxes, which were part of the sales price of their products, as receipts. When this occurred, an equal and offsetting amount was usually included in the cost of goods sold or as part of the separate deduction for taxes paid. When included in the cost of goods sold, these taxes were included in the statis-tics for taxes paid when they could be identified.

Tentative Minimum Tax [Form 4626, Line 12]

The tentative minimum tax was determined by applying a 20 percent tax rate to the alternative minimum taxable income after applying the reduction for the alternative tax NOLD and the income exemp-tion. The tentative minimum tax could be reduced by an AMT foreign tax credit and carryover of unused empowerment zone credit. The foreign tax credit was computed under the AMT system and could not become part of that credit allowed under the regular tax system. The carryover of empowerment zone credit could reduce up to 25 percent of the tentative minimum tax remaining after applying the AMT foreign tax credit.

The alternative minimum tax was the amount by which the remaining tentative minimum tax exceeded the regular tax after reduction by the foreign tax credit (under the regular system) and the possessions tax credit.

Total Assets and Total Liabilities [Page 5, Schedule L, Lines 15(d) and 28(d)]

Total assets and total liabilities were those re-ported in the end-of-year balance sheet in the corporations' books of account. Total assets were net amounts after reduction by accumulated deprecia-tion, accumulated amortization, accumulated deple-tion, and the reserve for bad debts. If these reserve accounts were reported as liabilities, they were treated as reductions from the asset accounts to which they related and total assets and liabilities were

When used in this report, the term total liabilities included both the claims of creditors and sharehold-ers' equity (see also, “Net Worth”). In addition, total liabilities were net amounts after reduction by the cost of treasury stock. See also, “Balance Sheets” in this section.

Total Deductions As presented in this publication, total deductions

comprised: (1) the cost of goods sold; (2) the ordinary and necessary business deductions from gross income; and (3) net loss from sales of noncapital assets. Components of total deductions were shown in the income statement segment of various tables throughout this report. See also, “Total Receipts.”

Total Income Tax After Credits [Page 3, Schedule J, Line 10]

Income tax after credits in the statistics equals “Total Income Tax Before Credits” less the sum of the “Foreign Tax Credit,” “Qualified Electric Vehicle Credit,” “General Business Credit,” “Prior Year Minimum Tax Credit,” and the “Credit for Holders of Tax Credit Bonds”. Many of these items are dis-cussed under their own headings.

Total Income Tax Before Credits Total income tax before credits was the sum of the

following taxes:

(1) income tax;

(2) personal holding company tax;

(3) recapture and other taxes;

(4) alternative minimum tax:

(5) excess net passive income tax;

(6) capital gains tax of regulated investment companies;

(7) tax on net income from foreclosure property;

(8) tax on net income from prohibited transac-tions;

(9) branch tax of foreign corporations;

(10) reciprocal tax;

(11) Code section 856 tax (includes 856 (c)(7) and 856(g)(5)); and

(12) Code section 857 tax (includes 857 (b)(5) and 857 (b)(7)(A)).

Other tax and interest amounts were either in-cluded in or subtracted from the total income tax. Amounts included were tax and interest on a nonqua-lified withdrawal from a capital construction fund (section 7518), interest due on deferred gain (section 1260(b), interest on deferred tax attributable to installment sales of certain timeshares and residential lots (section 453(l)(3)), certain nondealer installment


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obligations (section 453A(c)), interest due under the look-back method, and deferred tax due upon the termination of a section 1294 election for sharehold-ers in qualified electing funds. Amounts subtracted were deferred tax on the corporation’s share of the undistributed earnings of a qualified electing fund, recapture of new markets credit, recapture of employer-provided childcare facilities and services credit, and deferred LIFO recapture tax (Code section 1363(d)). These amounts were included in the statistics as adjustments to total income tax.

Total Income Tax (S Corporations) Total income tax for S corporations (1120S Basic

Tables 7 and 8) was the sum of the following taxes, each discussed under its own heading:

(1) income tax;

(2) income tax adjustments;

(3) excess net passive income tax;

(4) recapture taxes; and

(5) adjustments to total tax.

Total Net Income (Less Deficit) (S Corporations)

Since the Tax Reform Act of 1986, total net in-come (less deficit) is defined as the sum of ordinary income (loss), ordinary dividends, interest income, royalty income, other portfolio income, net income (loss) from rental real estate activities, net income (loss) from other rental activities, total net long-term capital gain (loss), and net short-term capital gain (loss). Prior to 1987, S corporation net income (less deficit) included most of the components of total net income (less deficit) above. The sum of the above components is a comprehensive measure of S corporation profits and losses that enables compari-sons with years prior to 1987.

Total Receipts Total receipts equal the sum of the following items,

each discussed under its own heading:

(1) business receipts;

(2) interest;

(3) interest on Government obligations: State and local;

(4) rents;

(5) royalties;

(6) net capital gains (excluding long-term gains from regulated investment companies);

(7) net gain, noncapital assets;

(8) dividends received from domestic corpora-tions;

(9) dividends received from foreign corporations (excluding certain taxable income from re-lated foreign corporations only constructively received), and

(10) other receipts.

Total receipts for S corporations equal the sum of the following items, each discussed under its own heading:

(1) business receipts;

(2) interest on Government obligations: State and local;

(3) net gain, noncapital assets, and

(4) other receipts.

S corporations reported receipts for interest, rents, royalties, net capital gains, and dividends on Form 1120S, Schedule K-1, Shareholders’ Shares of Income, Credits, Deductions, etc. These are not included in the statistics for this item in the Basic Tables section. Instead, they are presented in the 1120S Basic Tables section.

Total Receipts Less Total Deductions This item differed from net income (less deficit) for

tax purposes in that it included nontaxable interest on state and local government obligations and excluded constructive taxable income from related foreign corporations.

Total Special Deductions [Page 1, line 29c]

See “Statutory Special Deductions.”

U.S. Government Obligations [Page 5, Schedule L, Line 4(d)]

See “Investments in Government Obligations.”

U.S. Tax Paid or Withheld at Source [Form 1120-F, Page 1, Line 5h]

Foreign corporations with income related to a U.S. business activity (i.e., effectively connected income) often had U.S. income tax withheld at the source for portfolio or transportation income not effectively connected to their U.S. operations. Also withheld was certain effectively connected income such as, gains from the disposition of U.S. real property reported on Form 8288-A or income allocable to foreign partners reported on Form 8805. This withholding is shown


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separately for effectively connected income and non-effectively connected income in Tables 10 and 11.

U.S. taxes paid or withheld by resident foreign corporations on income effectively connected to a U.S. trade or business are included in the statistics for “Overpayment or Amount Owed.” Taxes withheld at the source on effectively connected income for foreign insurance companies are not included in Tables 10 and 11, but are included in “Overpayment or Amount Owed.” Taxes withheld at the source on non-effectively connected income are only included as a separate item in Tables 10 and 11.

Work Opportunity Credit Δ [Form 5884]

This credit is the successor to the jobs credit al-lowed in prior years. It was allowed to taxpayers who hired individuals from certain targeted groups to work at least 120 hours during the year. These groups were:

(1) members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program;

(2) certain disabled veterans in families receiving food stamps;

(3) newly released, economically disadvantaged ex-felons;

(4) high-risk youth, ages 18-24 from disadvan-taged areas;

(5) vocational rehabilitation referrals;

(6) qualified summer youth, ages 16-17 from disadvantaged areas;

(7) youth, ages 18-24, from families receiving food stamps and (SSI) hired after September 30, 1997;

(8) recipients of supplemental security income;

(9) Hurricane Katrina employees, and

(10) ARRA of 2009 added disconnected youth who begin work after 2008 and before 2011.

Only the first $6,000 ($3,000 for qualified summer youth) of qualified first-year wages paid or incurred for each employee during the Tax Year is taken into account. The credit was limited to 25 percent if the employee worked at least 120 hours, but less than 400 hours, and 40 percent if the employee worked 400 hours or more during the year.

The work opportunity credit was claimed as one of the components of the general business credit. For a discussion of the income tax limitations and carry-back and carryforward provisions of the credit, see “General Business Credit.” The components of the general business credit are shown separately in Table 21.

Zero-Assets See “Balance Sheets”

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